2019 Resolution Plan Public Section

Public Section i

PUBLIC SECTION

1. Executive Summary ................................................................................................................. 3

1.1. Introduction ............................................................................................................................. 3

1.2. Recent Regulatory Feedback and Guidance ............................................................................ 4

1.3. Key Enhancements and Changes in 2019 Plan ....................................................................... 5

1.4. Three Pillars of Resolution Planning ........................................................................................ 6

1.5. Advantages of the Firm’s Revised SPOE Resolution Strategy .................................................. 7

1.6. The 2019 Plan ......................................................................................................................... 8

1.6.1. Resolution Objectives .................................................................................................. 8

1.6.2. Resolution Strategy ..................................................................................................... 9

1.6.3. Resolvable Morgan Stanley ....................................................................................... 10

1.7. Conclusion ............................................................................................................................ 12

2. Firm Overview ........................................................................................................................ 14

3. Resolution Strategy ............................................................................................................... 16

3.1. Overview ............................................................................................................................... 16

3.2. ISG Solvent Wind Down Summary ........................................................................................ 20

3.3. Wealth Management and Investment Management Sales ...................................................... 21

4. Resolvable Morgan Stanley ................................................................................................... 22

4.1. Strategic and Legal Framework ............................................................................................. 22

4.1.1. Governance Mechanisms .......................................................................................... 22

4.1.2. Legal Entity Rationalization........................................................................................ 26

4.1.3. Separability ............................................................................................................... 29

4.2. Financial Adequacy ............................................................................................................... 31

4.2.1. Liquidity ..................................................................................................................... 33

4.2.2. Capital ....................................................................................................................... 36

4.2.3. Resolution Financial Model ........................................................................................ 38

4.2.4. Positioning Framework .............................................................................................. 40

4.2.5. Funding Playbook ...................................................................................................... 42

4.2.6. Trigger and Escalation Framework and Support Agreement Incorporation ................. 43

4.2.7. Derivatives and Trading Activities .............................................................................. 43

4.3. Operational Continuity and Capabilities ................................................................................. 53

4.3.1. Payment, Clearing and Settlement Activities .............................................................. 54

4.3.2. Managing, Identifying and Valuing Collateral ............................................................. 58

4.3.3. Management Information Systems............................................................................. 59

4.3.4. Shared and Outsourced Services .............................................................................. 60

4.3.5. Legal Obstacles Associated with Emergency Motions ................................................ 65

5. Recovery and Resolution Planning Governance .................................................................. 69

5.1. RRP Governance .................................................................................................................. 69

5.2. Resolution Plan Review and Challenge Framework ............................................................... 69

6. Recovery and Resolution Enhancement Program ............................................................... 71

7. Conclusion ............................................................................................................................. 72

8. Forward Looking Statements ................................................................................................ 73

9. Appendix A: Description of Core Business Lines ................................................................ 74

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10. Appendix B: Description of Material Entities ........................................................................ 78

11. Appendix C: Summary Financial Information ....................................................................... 87

12. Appendix D: Memberships in Material Payment, Clearing and Settlement Systems ......... 91

13. Appendix E: Foreign Operations ........................................................................................... 92

14. Appendix F: Interconnectedness .......................................................................................... 94

15. Appendix G: Material Supervisory Authorities ..................................................................... 99

16. Appendix H: Principal Officers .............................................................................................101

17. Glossary.................................................................................................................................102

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1. Executive Summary

1.1. Introduction

Morgan Stanley (as a stand-alone parent holding company, “MS Parent,” and on a consolidated basis,

the “Firm”) is a global financial services firm that, through its subsidiaries and affiliates, provides a wide

variety of products and services to a large and diversified group of customers and counterparties. The

Firm conducts its business from its headquarters in and around New York City, its regional offices and

branches throughout the United States and its principal offices in London, Tokyo, Hong Kong and other

world financial centers. The Firm is committed to managing its operations to promote the integrity of the

financial system and fulfilling its responsibility to maintain the highest standards of excellence.

The Firm supports regulatory changes made since 2008 that mitigate systemic risk and improve global

financial stability. One such regulatory change is the requirement for financial institutions to submit

resolution plans. The Firm believes that resolution planning is a key element of systemic regulation to

help protect the soundness of the global financial system. Accordingly, the Firm has prioritized resolution

planning and made it an essential element of its risk management and strategic planning processes,

integrating resolvability criteria into its business-as-usual (“BAU”) conduct. The Firm has dedicated

significant Firm resources to resolution planning, with the involvement of a substantial number of

employees across the Firm, including the Firm’s senior executive management. In its resolution planning,

the Firm is guided by and committed to the key objectives of (i) operating in a manner and with a culture

that contributes to the safety and soundness of the global financial system and (ii) enhancing its resilience

and resolvability.

The Firm has developed a resolution plan in accordance with the requirements of Section 165(d) of Title I

of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and its

implementing regulations (the “165(d) Rule”) adopted by the Board of Governors of the Federal Reserve

System (the “Federal Reserve Board”) and the Federal Deposit Insurance Corporation (the “FDIC”)

(together, the “Agencies” and such plan, the “2019 Plan” or the “Resolution Plan”).1 This “Public

Section” of the 2019 Plan is submitted concurrently with the Confidential Section, which describes how

MS Parent and its “Material Entities”2 could be resolved in a rapid and orderly manner that substantially

mitigates the risk that MS Parent’s failure would have serious adverse effects on financial stability in the

U.S.

The Firm’s 2019 Plan articulates a preferred strategy for the resolution of MS Parent and the Material

Entities (the “Resolution Strategy”) detailing how the Firm would be resolved under a range of scenarios

1 The 165(d) Rule requires the Firm to demonstrate how MS Parent could be resolved under the U.S Bankruptcy Code, without extraordinary government support and in a manner that substantially mitigates the risk that the failure of the Firm would have serious adverse effects on U.S. financial stability. The Resolution Plan is not binding on a court or resolution authority.

2 Material Entity is defined in the 165(d) Rule as a subsidiary or foreign office of the Firm that is significant to the Firm’s core businesses and critical activities. A description of the Firm’s Material Entities is included as Appendix B to this Public Section.

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and how potential vulnerabilities that might otherwise hinder or prevent a rapid, orderly and value-

maximizing resolution would be addressed and overcome. This Resolution Strategy is supported by

extensive resolution planning efforts that have been refined and enhanced over a period of years.

Moreover, the Firm has put in place a number of practices to help manage its resolvability over time and

address risks that may emerge as a result of changes in business practices, financial profile or

organizational structure.

The Firm believes that its 2019 Plan presents a feasible and credible strategy that demonstrates that the

Firm can be resolved without adverse effects on financial stability in the U.S. or on the broader global

economy. Based upon the strength of its capital and liquidity positions and the resiliency and credibility of

the Resolution Strategy under a wide range of scenarios, the Firm believes that none of the U.S.

government, the FDIC’s Deposit Insurance Fund (“DIF”) nor any foreign governments or taxpayers would

incur losses as a result of its failure. The 2019 Plan provides greater detail on all of the actions

completed by the Firm to address guidance received from the Agencies and other enhancements to

resolvability capabilities. With these actions, the Firm believes that it has the capabilities required to

execute its Resolution Strategy, although the Firm will also continue to evaluate and refine its capabilities

on an ongoing basis.

1.2. Recent Regulatory Feedback and Guidance

With the submission of this 2019 Plan, the Firm has submitted six Resolution Plans to the Agencies, as it

has been required to do on a periodic basis under the 165(d) Rule since the Firm’s first Resolution Plan

submission in 2012. Each one of the Firm’s Resolution Plans has responded to the Agencies’ feedback

and improved upon the feasibility of the Firm’s Resolution Strategy and associated capabilities.

The Firm now submits its 2019 Plan, which provides an update on the Firm’s resolution capabilities and

Resolution Strategy, including enhancements made subsequent to its Resolution Plan filed in 2017 (the

“2017 Plan”), while also describing how the Firm has addressed the shortcoming identified by the

Agencies in the 2017 Plan by (i) establishing Morgan Stanley Holdings LLC (the “Funding IHC”) as a

resolution funding vehicle that would supply capital and liquidity to the Material Entities in times of stress

and in resolution in a manner that is resilient to creditor challenge, (ii) enhancing its “Legal Entity

Rationalization (“LER”) Criteria” for determining its organizational structure and (iii) continuing to

simplify its legal entity structure.

The 2019 Plan also describes the significant improvements that the Firm has made with respect to its

Derivatives and Trading and Payment, Clearing and Settlement (“PCS”) capabilities in order to address

the updated requirements of the guidance released by the Agencies in December 2018 (“2019

Guidance”).3 While the Firm cannot anticipate every possible scenario, as a result of its refinement of the

3 In December 2018, the Agencies released the 2019 Guidance, which consolidated all prior Agency resolution planning guidance into one document and was substantially similar to the prior guidance released by the Agencies other than with respect to updated requirements pertaining to Derivatives and Trading Activities and Operational: Payment Clearing, and Settlement Activities.

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Resolution Strategy and implementation of these additional supporting capabilities, the Firm has become

more resilient and more easily resolved in a wider range of circumstances.

1.3. Key Enhancements and Changes in 2019 Plan

Many of the enhancements implemented by the Firm as part of the 2019 Plan are intended to respond to

the Agencies’ feedback to the 2017 Plan as well as the updated requirements in the 2019 Guidance.

In December 2017, the Agencies provided feedback on the 2017 Plan, noting that the plan contained

“meaningful improvements over prior resolution plan submissions of [Morgan Stanley],” but also identified

a shortcoming regarding the Firm’s development and implementation of criteria for a rational and less

complex legal entity structure that supports the Firm’s Resolution Strategy. The Agencies noted that the

Firm’s legal entity structure “increases the inherent risk of misallocating resources and therefore raises

questions about the Firm’s ability to execute its strategy across a range of scenarios.”

In response to the Agency feedback to the 2017 Plan and the updated requirements of the 2019

Guidance, the Firm has made a number of enhancements subsequent to its 2017 Plan and now submits

its 2019 Plan, which provides an update on the Firm’s resolution capabilities and Resolution Strategy.

The Firm has addressed the shortcoming identified by the Agencies in the 2017 Plan while improving its

resolvability by:

• Establishing the Funding IHC as a funding vehicle to provide funding flexibility during stress and

in resolution;

• Revising the “Support Agreement” and “Security Agreement” to incorporate the role of the

Funding IHC as a stress and resolution funding vehicle;

• Enhancing the Firm’s direct LER Criteria to actively support the reduction of legal entity

complexity; and

• Reducing complexity within the Firm’s legal entity structure through an ongoing process to

consolidate ownership of each Material Entity in a single ownership line and rationalize the

population of Material Entities and intermediate legal entities.

The 2019 Plan also describes the significant improvements that the Firm has made with respect to its

“Resolution Financial Model,” Derivatives and Trading and PCS capabilities in order to address the

updated requirements of the 2019 Guidance and continue improving its resiliency and resolvability. For

its Resolution Financial Model, the Firm has, among other improvements:

• Built new functionality in order to address the updated Derivatives and Trading requirements in

the 2019 Guidance;

• Implemented the Resolution Liquidity Stress Test (“RLST”);

• Revised the Resolution Financial Model to take account of the implementation of the Funding IHC

and its effect on the Firm’s support methodology; and

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• Made other, more granular, enhancements to other components of the model to improve the

Firm’s Resolution Liquidity Execution Need (“RLEN”)4 and Resolution Capital Execution Need

(“RCEN”)5 forecasting capabilities.

For Derivatives and Trading, the Firm has, among other improvements:

• Substantially improved its wind-down capabilities by creating a “Derivatives Segmentation and

Forecasting” systems-based application on a single, global platform;

• Established the “Booking Model Office” responsible for the operationalization, governance and

communication of the “Booking Model Framework”;

• Enhanced its Resolution Strategy by updating its strategy to stabilize and de-risk its derivatives

portfolios based on its improved wind-down capabilities developed in response to the 2019

Guidance; and

• Enhanced its inter-affiliate risk monitoring and controls framework (the “Inter-Affiliate Market

Risk Framework”) to improve its inter-affiliate risk monitoring and controls.

For PCS, the Firm has, among other improvements:

• Formalized additional strategies and capabilities in the “PCS Framework”, which contains the

Firm’s capabilities for continued access to PCS services essential to an orderly resolution;

• Improved identification and mapping of PCS clients and services;

• Developed a “PCS Data Repository” to house and centralize key dynamic data supporting the

Firm’s PCS Framework;

• Improved its “Financial Market Utility (“FMU”) and Agent Bank Access Playbooks”; and

• Enhanced its “Key PCS Provider Library”, which enables a comprehensive understanding of

the Firm’s PCS activities landscape and contains information about the Firm’s direct and indirect

relationships with key PCS providers.

1.4. Three Pillars of Resolution Planning

The Firm’s development of its Resolution Strategy in accordance with the Dodd-Frank Act and 165(d)

Rule has been guided by three primary principles, to which the Firm refers as the “Three Pillars of

Resolution Planning:”

4 RLEN provides the estimate of the amount of liquidity that each Material Entity requires to operate during the Resolution Period in accordance with the Firm’s Resolution Strategy.

5 RCEN provides the estimate of the amount of capital that each Material Entity requires for the execution of the Firm’s Resolution Strategy following the bankruptcy filing of MS Parent, while still maintaining capital levels that allow them to operate or to be wound down in an orderly manner.

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• Strategic and Legal Framework: The Firm should have the strategic and legal framework to

enable implementation of its Resolution Strategy under required time frames and stress

conditions.

• Financial Adequacy: Each Material Entity should have access to the liquidity and capital needed

to execute its resolution strategy without threatening the pre-failure resiliency of MS Parent.

• Operational Continuity and Capabilities: Each Material Entity should have access to the

personnel, data and systems, facilities, vendors and other non-financial resources needed to

execute the Resolution Strategy.

1.5. Advantages of the Firm’s Revised SPOE Resolution Strategy

In accordance with the Three Pillars of Resolution Planning, the Firm has developed and, since 2012,

continually refined, its Resolution Strategy. Under its Single Point of Entry (“SPOE”) Resolution Strategy,

MS Parent would recapitalize and provide liquidity resources to the Material Entities prior to MS Parent

entering proceedings under Chapter 11 of the U.S. Bankruptcy Code (“Chapter 11”) in order to enable

the Material Entities to remain solvent and be sold or wound down without entering resolution

proceedings. The Firm believes that such an SPOE approach is most likely to maximize the value of the

Firm for MS Parent stakeholders and minimize the impact of the failure of the Firm on U.S. financial

stability and the broader economy. This 2019 Plan describes further enhancements to the Firm’s SPOE

Resolution Strategy, including the establishment of the Funding IHC as a legal entity to facilitate transfers

of capital and liquidity to the Firm’s Material Entities during times of stress and in resolution.

The Firm’s SPOE Resolution Strategy offers a number of advantages over a Multiple Point of Entry

(“MPOE”) strategy, where individual Material Entities enter into their own resolution proceedings,

including the following:

• Maintaining continuity of operation by the Firm’s Material Entities, which would remain solvent

and would not enter standalone resolution proceedings;

• Reducing the losses that would be associated with the abrupt disruption of Material Entity

activities and the termination of their qualified financial contracts (“QFCs”) and other transactions

(including potentially large claims that could be brought against MS Parent based on its

guarantees of financial contracts to which Material Entities are party), and the liquidation of

collateral for such transactions in an MPOE resolution;

• Minimizing potential financial contagion by confining financial losses to MS Parent creditors,

which are effectively junior to the creditors of the Material Entities and would be at risk of

absorbing losses of the Firm; and

• Minimizing the complexity of resolution proceedings and avoiding the prospect of multiple

competing resolution proceedings for different Material Entities of the Firm.

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1.6. The 2019 Plan

The section summarizes the following features of the 2019 Plan:

• Resolution Objectives, the specific objectives that the Firm has deemed critical to the

development of its Resolution Plan.

• Resolution Strategy, the Firm’s Resolution Strategy, under which MS Parent would be resolved

under the U.S. Bankruptcy Code and the Material Entities would remain solvent and be sold or

wound down outside resolution proceedings.

• Resolvable Morgan Stanley, the main actions the Firm has taken to enhance its resolvability

and embed resolution planning and capabilities into BAU practices and processes, as aligned to

the Three Pillars of Resolution Planning.

The Firm has focused on, and invested in, enhancing its resolvability and addressing Agency feedback

and the 2019 Guidance. These investments in resolution planning have resulted in the extensive

integration of resolution preparedness into the Firm’s governance and related BAU activities. With this

Plan, the Firm has not only addressed the Agency-identified shortcoming regarding the Firm’s legal entity

structure but also executed the commitments made in its prior Resolution Plans and further enhanced its

resolvability capabilities consistent with the requirements of the 2019 Guidance as well as self-identified

areas for improvement.

While the Firm continuously evaluates and implements further enhancements to its capabilities and other

aspects of its resolvability, the Firm believes that it has the capabilities required to execute its Resolution

Strategy and is confident that it could be resolved in a rapid and orderly manner without endangering

financial stability or requiring extraordinary taxpayer or government support.

1.6.1. Resolution Objectives

The overarching goal of the Firm’s Resolution Strategy and supporting resolution planning efforts and

capabilities is to provide that if the Firm were to encounter “Material Financial Distress”6 or fail, it could

be resolved within the time frames and under the stress conditions mandated by the Agencies and

without taxpayer or government support or disruption to U.S. and global financial stability. The Firm has

developed a Resolution Strategy that would maintain the solvency of its Material Entities, including its

insured depository institutions (“IDIs”), and sustain its Critical Operations7 and Critical Economic

Functions8 (collectively, “Critical Functions”) under a broad range of internal or external stresses. It has

6 The 165(d) Rule defines Material Financial Distress to mean that (i) the Firm has incurred, or is likely to incur, losses that will deplete all or substantially all of its capital, and there is no reasonable prospect for the Firm to avoid such depletion; (ii) the Firm’s assets are, or are likely to be, less than its obligations to creditors and others; or (iii) the Firm is, or is likely to be, unable to pay its obligations (other than those subject to a bona fide dispute), in the normal course of business.

7 As defined in the 165(d) Rule. 8 As designated by the UK Prudential Regulation Authority (“PRA”).

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identified several key objectives guiding the development of this strategy. Together, these key objectives

require the Firm to design and implement a resolution strategy and are set forth below:

• Avoiding interruptions in performance to the customers and counterparties of the Firm’s

designated Critical Functions until such Critical Functions can be transferred to an alternate

provider or wound down in an orderly manner;

• Minimizing the spread of financial distress into the market due to:

o Payment defaults on short-term obligations;

o Counterparty terminations of their QFCs with the Firm;

o Fire sales of assets by the Firm to keep up with its financial obligations; and

o Trapping of customer assets;

• Maintaining marketability and separability of marketable business lines across a full range of

scenarios;

• Eliminating reliance on a regulator to take discretionary actions (or forbear from taking

discretionary actions);

• Eliminating reliance on an affiliate to take actions to benefit another affiliate (except as required

by contract) or to forbear from taking actions if such action or forbearance could materially

increase the risk that the affiliate itself would default on its obligations to third parties;

• Eliminating reliance on U.S. or foreign government financial support; and

• Eliminating significant risk to the FDIC’s DIF.

1.6.2. Resolution Strategy

The Firm has developed its Resolution Strategy to achieve the Resolution Objectives. Under the

Resolution Strategy, MS Parent would fail and file for bankruptcy under Chapter 11 but the Firm’s

Material Entities would remain solvent as a result of support provided by MS Parent (prior to its failure)

and the Funding IHC and would be sold or wound down as follows:

• The Firm’s Wealth Management (“WM”) and Investment Management (“IM”) “Core Business

Lines”9 would be sold; and

• Each of the Firm’s Institutional Securities Group’s (“ISG”) Material Operating Entities (“MOEs”)

would be wound down in an orderly manner outside of insolvency or resolution proceedings (the

“ISG Solvent Wind Down”).

9 Core Business Line is defined in the 165(d) Rule as a business line of the Firm, including associated operations, services, functions and support, that, in the view of the Firm, upon failure would result in a material loss of revenue, profit, or franchise value. A description of the Firm’s Core Business Lines is included as Appendix A to this Public Section.

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The Firm’s Resolution Strategy is described in further detail in Section 3 Resolution Strategy.

1.6.3. Resolvable Morgan Stanley

As described in further detail in this section, the Firm has implemented the steps necessary (i) to put in

place a strategic and legal framework to enable implementation of its Resolution Strategy under required

time frames and stress conditions, (ii) for each Material Entity to have access to the liquidity and capital

needed to execute its resolution strategy without threatening the pre-failure resiliency of MS Parent and

(iii) for each Material Entity to have access to the personnel, data and systems, facilities, vendors and

other non-financial resources needed to execute the Resolution Strategy. Together, the Firm’s continued

focus on the Three Pillars of Resolution Planning supports the credibility of the Resolution Strategy and

demonstrates the Firm’s increased resiliency and resolvability.

The Firm has invested significant resources so that it would be able to implement the Resolution Strategy.

The Firm has considered vulnerabilities to the successful implementation of the Resolution Strategy

identified in the 2019 Guidance, as well as the Firm’s own self-identified areas for improvement. The Firm

has undertaken significant enhancements, some of which were included in the 2017 Plan, to its

capabilities across all Three Pillars of Resolution Planning. In addition to the enhancements described in

Section 1.3, including improvements to address the Agency-identified shortcoming relating to the

complexity of the Firm’s legal entity structure, many improvements since the submission of the 2017 Plan

are addressed below. The Firm continues to evaluate and implement further enhancements to its

capabilities and other aspects of its resolvability in response to regulatory expectations and self-identified

areas of improvement.

With respect to the Strategic and Legal Framework pillar, the Firm has:

• Performed an enhanced legal analysis to confirm that support provided by MS Parent (prior to its

failure) and the Funding IHC in a resolution scenario is resilient to potential challenges by

creditors of MS Parent;

• Perfected security interests in substantial portions of MS Parent’s Contributable Assets and the

Funding IHC’s assets;

• Enhanced its stress and “Resolution Period”10 “Trigger and Escalation Framework” with a set

of updated triggers based on capital and liquidity metrics which are linked to specific Firm actions;

• Produced separate “Governance Playbooks” for MS Parent and each Material Entity, including

fiduciary duties analyses prepared by external counsel, to ensure timely decision-making and

action execution;

• Enhanced and expanded its LER Criteria to be more direct and actively support the reduction of

legal entity complexity and assessed the Firm’s legal entities against these criteria;

10 The Resolution Period is the period of time following the failure of MS Parent.

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• Enhanced its separability analysis to support sales strategies for WM and IM, including through

the preparation of sale package buyer documents, carve out financials and valuations; and

• Maintained its capability to create virtual data rooms containing relevant buyer due diligence

materials.

With respect to the Financial Adequacy pillar, the Firm has:

• Developed a Resolution Liquidity Adequacy and Positioning (“RLAP”) model to estimate

standalone liquidity requirements for each Material Entity, incorporated this model into the Firm’s

Internal Liquidity Stress Testing (“ILST”) framework and improved the Firm’s other liquidity and

capital modeling capabilities;

• Enhanced the Resolution Financial Model which demonstrates that the Firm has adequate

resources to execute its Resolution Strategy in a range of scenarios to, among other things,

account for the updated Derivatives and Trading requirements of the 2019 Guidance and the

implementation of the Funding IHC and its effect on the Firm’s support methodology;

• Enhanced the Firm’s “Positioning Framework,” which the Firm uses to determine the

appropriate amount of financial resources (i.e., liquid assets and internal loss absorbing capacity

(“ILAC”)) to be positioned at MS Parent and Material Entities, to be consistent with the

enhancements made to address the Agency-identified shortcoming and 2019 Guidance;

• Enhanced the Firm’s Derivatives and Trading Activities capabilities, including by updating its

strategy to stabilize and de-risk its derivatives portfolios based on its improved wind-down

capabilities developed in response to the 2019 Guidance; and

• Strengthened inter-affiliate contracts and service level agreements to promote resolvability.

With respect to the Operational Continuity and Capabilities pillar, the Firm has:

• Enhanced its strategy to maintain access to critical FMUs and agent banks by developing new

playbooks and enhancing existing playbooks, including through identification of key clients of the

Firm and their mapping to critical FMUs and agent banks;

• Confirmed the Firm’s full suite of resolution capabilities and supporting systems through the

Annual Resolvability Enhancement Assessment (“AREA”) process;11

• Migrated shared operational resources and services from MOEs to an operationally and

financially resilient global network of Material Service Entities (“MSE”);12

11 AREA is the Firm’s process to assess, in an objective and formal manner, the sufficiency of existing practices that support robust recovery and resolution preparedness, relative to explicit regulatory rules, expectations and guidance. Through AREA, the Firm evaluates its ability to execute certain functions and produce the data, reporting and analysis (inclusive of contractual, financial, risk and operational information, at the appropriate level of detail) that would be required to execute the Resolution Strategy in a timely manner.

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• Expanded and enhanced its operational mapping process;

• Executed and updated service-level agreements (“SLAs”) between Material Entities;

• Reviewed “Critical Contract”13 provisions and remediated as necessary;

• Enhanced its “Guarantee Administrative Priority Motion”—which ensures certain claims can

be appropriately raised to administrative priority status in Chapter 11—by including alternative

relief in the form of a transfer motion;

• Identified its QFC population and engaged a vendor to digitize QFC cross-default provisions; and

• Remediated termination rights in QFCs by adhering relevant Firm entities to the International

Swaps and Derivatives Association (“ISDA”) 2018 U.S. Resolution Stay Protocol (together with

the ISDA 2015 Universal Resolution Stay Protocol, the “ISDA Protocols”) and entering into

bilateral amendments in order to comply with the requirements of the “QFC Stay Rules.”14

The Firm has taken significant steps in order to achieve the integration of resolution planning into BAU

activities. The integration of resolution planning into BAU activities facilitates the evaluation of resolution-

related issues and considerations that could arise from the Firm’s strategic decisions, regulatory

requirements or on account of changes in business practices, financial profile and organizational

structure. Notwithstanding that the actions taken by the Firm to date have been more than sufficient to

make the Firm resolvable as required by the Dodd-Frank Act and 165(d) Rule, the Firm is also continuing

to assess and further develop its resolution planning capabilities beyond July 2019, including by testing

and validating existing capabilities.

1.7. Conclusion

This 2019 Plan provides an update on the Firm’s resolution capabilities and Resolution Strategy,

including enhancements made subsequent to the 2017 Plan, while also describing how the Firm has

addressed:

12 Material Service Entities provide support services, functions and/or resources that are significant to Material Entities, in support of Core Business Lines and Critical Operations.

13 Critical Contracts are written contracts, other than QFCs, that relate to the receipt of inter-affiliate and third-party services, products or resources that would be necessary for the business of a Material Entity to function during an orderly resolution and are not promptly substitutable without a material adverse effect on the Material Entity’s operation during resolution.

14 The QFC Stay Rules impose certain restrictions on the terms of QFCs entered into with U.S. global systemically important banks (“G-SIBs”) and the U.S. operations of foreign G-SIBs and require G-SIBs that are subject to the rules to remediate their in-scope QFCs (unless an exclusion or exemption applies) to (i) expressly acknowledge the FDIC’s stay-and-transfer powers pursuant to the Federal Deposit Insurance Act and Orderly Liquidation Authority and (ii) override default rights that are related directly or indirectly to an affiliate of the G-SIB becoming subject to insolvency proceedings, as well as any restriction on the transfer in resolution of related credit enhancements provided by an affiliate of the G-SIB, subject to certain creditor protections.

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• The shortcoming identified in the 2017 Plan by establishing the Funding IHC as a funding vehicle,

enhancing its LER Criteria framework and continuing to simplify its legal entity structure; and

• The updated requirements of the 2019 Guidance.

With these further enhancements to its capabilities and resolvability, the Firm is confident that it has the

ability to successfully execute its Resolution Strategy. Based upon the strength and flexibility of its capital

and liquidity positions and the resiliency and credibility of the Resolution Strategy under a wide range of

scenarios, the Firm believes that none of the U.S. government, the FDIC’s DIF nor any foreign

governments or taxpayers would incur losses as a result of its failure.

In particular, the following Public Section provides (i) a summary of the Resolution Strategy; (ii) a

summary of the Firm’s resolution capabilities with respect to each vulnerability described in the 2019

Guidance; (iii) an overview of the Firm’s resolution planning governance structure, review and challenge

framework and other processes that have been developed to sustain and enhance the Firm’s resolvability

capabilities; and (iv) brief summaries of completed remediation projects within the Firm’s Recovery and

Resolution Enhancement Program (“RREP”). The Public Section also includes eight appendices that

provide additional information regarding the Firm pursuant to the requirements of the 165(d) Rule, as well

as a Glossary.

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2. Firm Overview The Firm is a global financial services institution that, through its subsidiaries and affiliates, advises, and

originates, trades, manages and distributes capital for governments, institutions and individuals. MS

Parent was originally incorporated under the laws of the State of Delaware in 1981, and its predecessor

companies date back to 1924. The Firm is a financial holding company regulated by the Federal Reserve

Board under the Bank Holding Company Act of 1956, as amended. The Firm conducts its business from

its headquarters in and around New York City, its regional offices and branches throughout the U.S. and

its principal offices in London, Tokyo, Hong Kong and other world financial centers. As of December 31,

2018, the Firm had 60,348 employees worldwide.

The Firm is a global financial services institution that maintains significant market positions in each of its

Core Business Lines: ISG, WM and IM.15 Since its founding, the Firm has served the capital markets

and advisory needs of its clients within its ISG business, for which the underlying business model has

continuously evolved to adapt to the changing economic and regulatory landscape. Over the years, the

Firm has diversified into other businesses, including retail services within WM and institutional asset

management services within IM. All aspects of the Firm’s businesses are highly competitive, and the

Firm expects them to remain so in the future. The Firm competes in the U.S. and globally for clients,

market share and human talent in all aspects of its Core Business Lines. The Firm competes with

commercial banks, brokerage firms, insurance companies, electronic trading and clearing platforms,

financial data repositories, mutual fund sponsors, hedge funds, energy companies and other companies

offering financial or ancillary services in the U.S. and globally.

The Firm executes the global business operations related to its three Core Business Lines through a

number of legal entities within its structure. While legal entities may exist in the Firm’s structure to

support a variety of business operations and financial efficiencies, the vast majority of the Firm’s business

operations are conducted through a concentrated subset of the legal entity population, which the Firm

designates as its Material Entities.16

Exhibit 2-1 identifies the entities that have been designated as the Firm’s Material Entities for the 2019

Plan.

Exhibit 2-1. List of Material Entities Included in the 2019 Plan

MATERIAL ENTITY NAME DESCRIPTION

Material Operating Entities

1 Morgan Stanley & Co. LLC (“MSCO”) U.S. Institutional Broker-Dealer, FCM

2 Morgan Stanley & Co. International plc (“MSIP”) UK Broker-Dealer

3 Morgan Stanley MUFG Securities Co., Ltd. (“MSMS”) Japan Broker-Dealer

15 The Firm’s Core Business Lines are discussed in greater detail in Appendix A: Description of Core Business Lines.

16 The Firm’s Material Entities are discussed in greater detail in Appendix B: Description of Material Entities.

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MATERIAL ENTITY NAME DESCRIPTION

4 Morgan Stanley Capital Services LLC (“MSCS”) U.S. Swap Dealer

5 Morgan Stanley Capital Group, Inc. (“MSCG”) U.S. Commodities, Swap Dealer

6 Morgan Stanley Bank, N.A. (“MSBNA”) U.S. National Bank

7 Morgan Stanley Private Bank, N.A. (“MSPBNA”) U.S. National Bank

8 Morgan Stanley Smith Barney LLC (“MSSB”) U.S. Retail Broker-Dealer

9 Morgan Stanley Investment Management Inc. (“MSIM Inc.”) U.S. Investment Advisor

10 Morgan Stanley Investment Management Ltd. (“MSIM Ltd.”) U.K. Investment Advisor

11 Morgan Stanley Europe SE (“MSESE”) German Broker-Dealer

12 Morgan Stanley Bank Aktiengesellschaft (“MSBAG”) German Bank

Material Service Entities

13 Morgan Stanley Services Group (“MSSG”) U.S. Support Services Provider

14 MS Financing LLC (“MSFL”) U.S. Real Estate & Procurement Company

15 Morgan Stanley UK Group (“MSUKG”) UK Real Estate Company

16 Morgan Stanley UK Limited (“MSUKL”) UK Support Services Provider

17 Morgan Stanley Smith Barney Financing LLC (“MSSBF”) U.S. Real Estate and Procurement Company

18 Morgan Stanley Smith Barney FA Notes Holding LLC (“MSSBFA”) U.S. F.A. Notes Financing Company

19 Morgan Stanley Japan Group Co., Ltd (“MSJG”) Japan Support Services Provider

20 Morgan Stanley Services Canada Corp (“MSSCC”) Canada Technology Workforce Center

21 Morgan Stanley Hungary Analytics Limited (“MSHAL”) Hungary Workforce Center

22 Morgan Stanley Advantage Services Private Limited (“MSASPL”) India Workforce Center

23 Morgan Stanley Management Services (Shanghai) Limited (“MSMSSL”) China Workforce Center

24 Morgan Stanley Services Holdings (“MSSH”) U.S. Payroll Company

25 Morgan Stanley Asia Limited (“MSAL”) Hong Kong Broker-Dealer and Support Service

Provider

26 Morgan Stanley Hong Kong Ltd (“MSHKL”) Hong Kong Fixed Asset Holding Company

27 Morgan Stanley Employment Services UK Limited (“MSES”) UK Front Office Employment Entity

28 Morgan Stanley Holdings LLC Funding IHC

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3. Resolution Strategy

3.1. Overview

The Firm has developed its Resolution Strategy and articulated how this strategy could be successfully

implemented by the Firm within the time frames and under the stress conditions mandated by the

Agencies without taxpayer or government support and without disruption to U.S. and global financial

stability. Consistent with its Resolution Objectives, the Firm has developed an SPOE Resolution Strategy

under which MS Parent would fail and file for bankruptcy under Chapter 11 but the Firm’s Material Entities

would remain solvent as a result of support provided by MS Parent (prior to its failure) and the Funding

IHC and would be sold or wound down as described below. Throughout the resolution of the Firm,

operational continuity and access to all critical internal and external services would be maintained to

implement the Resolution Strategy, prevent the failure of any Material Entities and maximize the value

preserved for MS Parent’s bankruptcy estate. After having implemented the Resolution Strategy, the

Firm would essentially no longer exist at the end of the Resolution Period.

Hypothetical Resolution Scenario

To develop its Resolution Strategy, the Firm has used a hypothetical failure scenario and associated

assumptions mandated by regulatory guidance (the “Hypothetical Resolution Scenario”). Under the

Hypothetical Resolution Scenario, the Firm is required to assume that it would face a severe idiosyncratic

stress event in a severely adverse economic environment, requiring resolution of the Firm. The Firm is

also required to assume that it does not take any recovery actions or that any recovery actions taken

would not be successful. The Resolution Plan describes how, in the Hypothetical Resolution Scenario,

MS Parent could be resolved in a manner that satisfies the requirements of the 165(d) Rule.

The Hypothetical Resolution Scenario and the related assumptions are hypothetical and do not

necessarily reflect an event or events to which the Firm is or may become subject. The Firm’s resolution

planning efforts are aimed at increasing the Firm’s resilience and resolvability under a variety of

scenarios. The Hypothetical Resolution Scenario includes a set of extremely severe economic

assumptions, which require the Firm to absorb large losses and experience severe liquidity outflows in a

severely adverse macroeconomic environment. The Resolution Strategy is not binding on any court or

other resolution authority. The Resolution Strategy is dynamic and, in the unlikely event that a real event

of Material Financial Distress were to occur, actual events at the time would be based on the facts and

circumstances during the actual period of Material Financial Distress, including decisions and actions of

regulators and other parties.

Support Agreement Framework

A central component of the Firm’s SPOE Resolution Strategy is the “Support Agreement Framework,”

which is comprised of the following:

• The Trigger and Escalation Framework: triggers based on capital and liquidity metrics

prescribe when the Firm must take clearly identified actions and initiate related communications

to implement the Resolution Strategy, including transferring additional resources to the Funding

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IHC so that the Funding IHC can provide capital and liquidity to the Material Entities, allowing

them to remain solvent and implement the Resolution Strategy.

• The Support Agreement: a contractually binding mechanism that commits MS Parent, the

Funding IHC and certain of their subsidiaries to support the Material Entities upon the occurrence

of certain triggers and ensures that resources are made available to those Material Entities that

need them.

• The Security Agreement: creates perfected security interests in assets of MS Parent and the

Funding IHC that could be contributed to the Material Entities, incentivizing MS Parent and the

Funding IHC to perform its obligations under the Support Agreement and mitigating any potential

legal challenges to MS Parent’s and the Funding IHC’s provision of support to the Material

Entities.

The Support Agreement Framework would govern the progression of the Resolution Strategy prior to MS

Parent’s failure. The Support Agreement Framework includes a full continuum of triggers based on

liquidity and capital metrics, described below and illustrated in Exhibit 3-1, which are linked to specific

Firm actions and which identify when and under what conditions the Firm, including MS Parent and its

Material Entities, would transition from BAU (i.e., the “Baseline/Action Zone”) conditions to a “Recovery

Period” to the pre-resolution “Runway Period” and, in the unlikely event recovery actions proved to be

unsuccessful, to the Resolution Period.

Resolution Chronology

The timeline for the Resolution Strategy is illustrated in Exhibit 3-1.

Exhibit 3-1. The Resolution Continuum and Trigger and Escalation Framework

During BAU, substantial capital and liquidity have been pre-positioned at the Funding IHC and the

Material Entities, as described further in Section 4.2 Financial Adequacy. Upon the occurrence of a

“Calculation Trigger” (marked A in Exhibit 3-1), the Firm would exit BAU and enter the Recovery Period.

This Recovery Period would last until the occurrence of either (i) a “Distress Trigger” (marked B), at

which point the Firm would recognize that recovery actions may have been unsuccessful and resolution,

rather than recovery, is a potentially more likely outcome, or (ii) the Firm’s recovery.

During the Runway Period that would begin upon the occurrence of a Distress Trigger, the Firm would

increase the amount of assets pre-positioned at the Funding IHC pursuant to the Support Agreement and

would execute strategic preparatory actions for a potential resolution. Pursuant to the Support

Agreement, upon the occurrence of a “Support Trigger” (marked C), MS Parent would be required to

contribute to the Funding IHC its remaining contributable assets (i.e., MS Parent assets other than certain

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excluded assets, such as interests in subsidiaries and a holdback for bankruptcy expenses). Such assets

would be downstreamed to the Funding IHC during the “Support Completion Period” (marked D). In

addition, upon occurrence of the Support Trigger, any remaining inter-company debts of the Material

Entities, or certain intermediate entities, that are ultimately owed to MS Parent and were not contributed

to Funding IHC would be subordinated to external creditors of such entities and their maturities would be

extended.

During the Resolution Period, the Funding IHC would be obligated to provide capital and liquidity support

to the Material Entities pursuant to the Support Agreement. This support, together with the financial

resources already held by the Material Entities prior to the occurrence of the Support Trigger, would be

sufficient to allow the Material Entities to remain solvent and implement the Resolution Strategy.

The obligations of MS Parent under the Support Agreement are secured on a senior basis by

substantially all of the Contributable Assets of MS Parent. As a result, claims of the Funding IHC and the

other Material Entities against the assets of MS Parent (other than the stock of its subsidiaries) will be

effectively senior to unsecured obligations of MS Parent. MS Parent, like most parent holding companies,

has no operations and depends on dividends, distributions and other payments from its subsidiaries to

fund dividend payments and to fund all payments on its obligations, including debt obligations.

Contemporaneously with the occurrence of the Support Trigger, a “Bankruptcy Governance Trigger”

(marked D) would occur, prompting the MS Parent Board to consider commencing voluntary proceedings

under Chapter 11 for MS Parent. Shortly thereafter, MS Parent would be expected to commence a

voluntary case under Chapter 11 (marked D), while the Firm’s Material Entities would remain solvent and

outside of resolution proceedings.17 The commencement of MS Parent’s Chapter 11 case would mark

the end of the Runway Period and the beginning of the Resolution Period. Exhibit 3-2 illustrates which

MOEs and MSEs will be sold or wound down under the Resolution Strategy.

17 In order to avoid the close-out on unfavorable terms of QFCs entered into by these Material Entities, MS Parent would seek expedited Bankruptcy Court approval of a motion to elevate guarantees of subsidiary QFCs to administrative priority status or, in the event the bankruptcy court does not approve such elevation, to transfer certain MS Parent assets and guarantee obligations of subsidiary QFCs to a new holding company owned by a trust for the sole benefit of MS Parent’s bankruptcy estate.

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Exhibit 3-2. Firm Resolution Strategy

During the “Stabilization Period,”18 a sale process would be initiated for the Firm’s highly marketable

Core Business Lines that would likely retain significant franchise value in a resolution scenario: (i) WM,

including the U.S. retail broker-dealer (MSSB) and U.S. banks (MSBNA and MSPBNA); and (ii) IM,

including the U.S. investment advisor (MSIM Inc.) and UK investment advisor (MSIM Ltd.). In addition,

the ISG Solvent Wind Down would be commenced.

Under the ISG Solvent Wind Down, ISG’s MOEs would be wound down while keeping them outside

stand-alone bankruptcy or other insolvency proceedings. The ISG Solvent Wind Down is not in any way

dependent on financial resources from the sale of WM and IM and the sale of WM and IM would not

affect any operational capabilities supporting the ISG Solvent Wind Down, or vice versa.

Advantages of the Firm’s SPOE Resolution Strategy

The Firm strongly believes that its Resolution Strategy has the following significant advantages, among

others:

• It preserves the value of Core Business Lines and Critical Functions by allowing them to be sold

or wound down in an orderly fashion without the Material Entities entering insolvency or resolution

proceedings.

• WM retail brokerage customers and ISG Prime Brokerage (“PB”) customers retain seamless, full

and timely access to their accounts and are fully protected during the execution of the Resolution

Strategy, and neither MSBNA or MSPBNA depositors nor the FDIC’s DIF suffer losses.

• All liabilities of Material Entities are paid as they become due, including liabilities to derivatives

counterparties, which will either be paid as scheduled or through novations or consensual tear-

ups.

18 The Firm defines its Stabilization Period as the period during which the Firm would transfer Prime Brokerage clients to alternate providers over a six week timeframe after MS Parent’s failure.

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• The early terminations of financial contracts based on cross default rights, and related significant

losses, are avoided.

• Secured funding counterparties are able to receive payment of cash without foreclosing on

securities collateral, and securities lenders are able to receive their securities without foreclosing

on cash collateral.

• The use of the Funding IHC as a resolution funding vehicle helps ensure that (i) resources are

appropriately allocated in resolution and (ii) flexibility and optionality are maintained in order to be

responsive to the facts and circumstances of an actual resolution scenario.

• No customer assets are trapped.

The Resolution Strategy is executable from a business, financial and operational point of view. The

financial feasibility of the Resolution Strategy has been analyzed using conservative assumptions and

detailed, robust capital and liquidity frameworks. The Firm continues to take significant steps to ensure

that its Resolution Strategy is feasible, as described in the following sections.

3.2. ISG Solvent Wind Down Summary

The Firm selected wind down as its strategy for ISG because, while a sale of ISG (alone or as part of a

sale of the overall Firm) or continuity of the business as a going concern are theoretically possible,

historical examples and the Firm’s scenario modeling indicate that a sale would likely not be practical.

Therefore, to ensure that the ISG business can be resolved in an orderly manner in a broad range of

scenarios, the Firm has elected to demonstrate that its ISG MOEs could be wound down without entering

resolution proceedings, which the Firm refers to as the ISG Solvent Wind Down. The ISG Solvent Wind

Down is modeled as a 12-month period (i.e., the Resolution Period) and demonstrates that, at the end of

the Resolution Period, the Firm does not pose systemic risk to the market. The Firm defines its

Stabilization Period as the period during which the Firm would transfer Prime Brokerage clients to

alternate providers over a six week timeframe after MS Parent’s failure. The Firm assumes it would not

actively exit derivatives positions during the Stabilization Period.

The objective of the ISG Solvent Wind Down is a rapid and orderly wind down of ISG’s MOEs in a manner

that maximizes value, and minimizes cost and disruptions to the broader financial system and economy.

The liquidity and capital support provided by MS Parent (prior to its failure) and the Funding IHC pursuant

to the Support Agreement Framework and the override of cross defaults in QFCs to which the ISG MOEs

are party would enable the ISG MOEs to remain outside of resolution proceedings.

The ISG Solvent Wind Down entails a wind down of sales and trading activity, a transfer of PB customer

assets and a cessation of investment banking and capital markets activities. Consistent with the Firm’s

resolution objectives, the Firm believes that ISG’s:

• Sales and trading portfolios are sufficiently liquid to convert non-cash assets into cash at a rate

faster than the rate of net liquidity outflows without breaching any capital constraints or

transmitting liquidity risk into the market; and

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• Operational capacity and infrastructure would be sufficient to quickly transfer PB accounts to

alternate providers.

3.3. Wealth Management and Investment Management Sales

As highly marketable businesses with steady cash flows, WM and IM are likely to generate interest from a

diverse buyer pool even in stressed market conditions with valuations reflecting assumptions appropriate

for resolution. The details of the sales will depend, in many respects, on whether the business is sold to a

financial or strategic buyer, but the Firm has attempted to maintain flexibility to accommodate both types

of buyers.

The Firm believes that the WM and IM Material Entities should have sufficient capital and liquidity

throughout the resolution process. To demonstrate that WM and IM will maintain business continuity

through completion of the sale, the Firm has used existing BAU and resolution plan processes, including

those described in Section 4.3 Operational Continuity and Capabilities, to identify key front- and back-

office dependencies and to develop a strategy to maintain service continuity and retain business value.

To demonstrate that WM and IM are separable, the Firm has a strategy for dedicated personnel, vendor

services, technology facilities and related contracts likely to be transferred to each buyer on the first day

after the divestiture. Necessary shared services and resources may be provided to buyers by

operationally and financially resilient MSEs pursuant to transitional services agreements (“TSAs”), which

can be based on existing SLAs between MSEs and their MOE customers. The Firm analyzed potential

impediments and performed legal risk assessments to demonstrate that the sales can be executed

contemporaneously with no disruption to execution of the ISG Solvent Wind Down. No Material Entities

are reliant on sale proceeds as a source of funding to satisfy RCEN or RLEN under the Resolution

Strategy.

The Firm drew on its institutional knowledge and governance processes from past involvement, as buyer,

seller and advisor, in comparable transactions to produce a “Marketing and Sale Playbook,” separability

strategy and business valuations and to facilitate buyer due diligence, sale package materials, and carve-

out financial statements and demonstrate its capabilities to populate a virtual data room in a timely

manner.

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4. Resolvable Morgan Stanley The Firm has in place a rational legal entity structure, robust capabilities and effective processes required

to implement its Resolution Strategy. Since submitting the 2017 Plan, the Firm has taken numerous

actions to further simplify its entity structure, enhance its capabilities and improve its processes across its

Three Pillars of Resolution Planning. The Firm has assessed the risks to resolvability outlined in the

Agency Guidance, as well as other risks identified by the Firm, and has developed or maintained

capabilities to address these risks across the Three Pillars.

The following sections provide a detailed overview of the Firm’s capabilities across each of the Three

Pillars, including how risks to resolvability were identified, assessed and mitigated. The sections are

organized according to the Firm’s capabilities, which directly address vulnerabilities identified by the

Agency Guidance, including applicable shortcomings.

4.1. Strategic and Legal Framework

4.1.1. Governance Mechanisms

The Firm’s “Governance Mechanisms” are designed to facilitate timely execution of required Board

actions, including authorizing MS Parent to provide financial resources to the Funding IHC and Material

Entities in a manner that is resilient to potential creditor challenge. This section describes the Firm’s key

Governance Mechanisms capabilities:

• Trigger and Escalation Framework: embedded into the Firm’s global capital and liquidity

policies to indicate when the Firm is transitioning from each period in the stress continuum and

identify when escalation is needed to senior management and Boards of Directors to facilitate

timely decision making;

• Governance Playbooks: incorporate the Trigger and Escalation Framework and discuss the

fiduciary duties of MS Parent and Material Entity Boards in order to support required actions;

• Support Agreement Framework: underpins the Resolution Strategy, whereby MS Parent and/or

the Funding IHC are contractually obligated to downstream financial support upon clearly defined

triggers, enabling Material Entities to have sufficient capital and liquidity to execute the Resolution

Strategy; and

• Material Entity Sales Proceeds Funding Agreements: serve as an additional source of liquidity

in resolution.19

The Firm's Governance Mechanisms address the legal issues associated with the implementation of the

stay on cross-default rights described in Section 2 of the ISDA Protocols and other contractual provisions

that comply with the requirements of the QFC Stay Rules. In addition, the Governance Mechanisms

19 The Resolution Strategy does not rely on the use of sales proceeds for successful execution.

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describe the Firm’s preferred relief being sought in MS Parent’s Chapter 11 proceeding and address

issues that are likely to be raised at the hearing, including through:

• Bankruptcy Playbook: includes all steps and motions needed to file for bankruptcy, essential

strategies and components including the override of cross-default rights of QFC counterparties

and gaining support of international regulators; and

• Emergency Motion: seeks relief from the Bankruptcy Court necessary to meet the requirements

of the ISDA Protocols.

Trigger and Escalation Framework

The Firm's Trigger and Escalation Framework is designed to guide the execution of the Resolution

Strategy by defining triggers to inform timely execution of required actions, including the provision of

capital and liquidity support to the Funding IHC and Material Entities and the decision of MS Parent to file

for bankruptcy. These triggers are based on capital and liquidity metrics, including RCEN and RLEN, and

reflect changes to the Firm’s capital and liquidity positions that may result from anticipated market

conditions.

Exhibit 4-1 depicts the sequence of triggers in the context of the continuum between the Baseline/Action

Zone and the Resolution Period. The enhanced Trigger and Escalation Framework has been embedded

in capital and liquidity policies, as appropriate, to document related roles and responsibilities. These

triggers are described in greater detail in Section 3.1 Overview.

Exhibit 4-1. Trigger and Escalation Framework through the Continuum

The Trigger and Escalation Framework is flexible enough to function under a wide range of failure

scenarios. In any conceivable stress scenario, the Firm’s Trigger and Escalation Framework would be

activated well in advance of the time at which the Firm’s solvency could be in doubt. The Firm’s

expectation is supported through sensitivity analyses that confirm that the Trigger and Escalation

Framework allows sufficient time to prepare for resolution even in scenarios that are different or more

severe than the “Primary Scenario,” which is the hypothetical financial scenario underpinning the

Resolution Plan.

The Firm’s Trigger and Escalation Framework is grounded in three principles:

• Management Information Systems (“MIS”) capabilities: Triggers should be linked to metrics

that are frequently monitored during the Baseline/Action Zone and are incorporated into existing

capital and liquidity policies and frameworks;

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• Timing of actions: Triggers should enable the Firm to take or begin taking certain actions when

bankruptcy is sufficiently remote, allow sufficient time to prepare for resolution (e.g., the Runway

Period and enable the downstreaming of MS Parent resources in advance of a bankruptcy filing;

and:

• Flexibility: Triggers should detect stress in a wide variety of failure scenarios, as supported

through sensitivity analysis.

The Firm has enhanced its triggers to inform the timely provision of any MS Parent and the Funding IHC

support necessary to maintain capital and liquidity levels at Material Entities in excess of applicable

constraints. Such Material Entity capital and liquidity triggers (e.g., those which are based on regulatory

capital minimums), as appropriate, have been included within the applicable capital and liquidity policies.

Support Agreement Framework and Legal Challenge Analysis

The Support Agreement is designed to contractually obligate and incentivize MS Parent to provide capital

and liquidity resources to the Material Entities (including via the Funding IHC) prior to MS Parent reaching

the point of non-viability (“PNV”). It allows the Firm to deploy resources flexibly during a BAU

environment through the Positioning Framework while ensuring that Material Entities would maintain

sufficient capital and liquidity resources during a resolution scenario, enabling them to successfully

execute the Resolution Strategy while MS Parent is resolved in a Chapter 11 Proceeding.20 The Support

Agreement (i) provides the Firm with the flexibility to maintain a certain level of resources at MS Parent

and the Funding IHC that can be deployed to those Material Entities most in need based on an

assessment of the most current and accurate information available during such a time of stress and (ii)

makes the Resolution Strategy less vulnerable to ring-fencing and other funding frictions that could exist

under full BAU positioning.

The Firm has made extensive changes to its Support Agreement Framework and related capabilities in

order to operationalize the Funding IHC as a funding vehicle, including by:

• Entering into an enhanced Support Agreement and Security Agreement;

• Revising its Trigger and Escalation framework to ensure that the Funding IHC is appropriately

funded in stress and fully operational prior to MS Parent’s failure;

• Establishing appropriate governance arrangements for the Funding IHC;

• Accounting for the use of the Funding IHC in its capital and liquidity modeling;

• Analyzing potential legal impediments to the use of the Funding IHC as a funding vehicle during

stress and in resolution;

20 Immediately prior to MS Parent’s failure, the Support Agreement provides for the subordination of upstream inter-company debts from the Material Entities and certain other entities to MS Parent and an extension of term of the same, in addition to the cancellation of the Funding Note issued to MS Parent from the Funding IHC.

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• Revising Material Entity Sales Proceeds Funding Agreements; and

• Establishing BAU processes to test the Funding IHC’s operational capabilities required for

resolution.

Based on a further-developed legal analysis of potential creditor challenges, and other associated

mitigants, the Firm believes that MS Parent support to Material Entities, including the Funding IHC, in a

time of Material Financial Distress is resilient to potential creditor challenges.

Governance Playbooks

Playbooks have an important role in identifying actions the Firm is expected to take during periods of

stress and resolution as well as confirming that the Firm currently has the capabilities to support such

actions. Accordingly, the Firm has tailored Governance Playbooks for MS Parent, the Funding IHC and

each Material Entity. The Firm’s Governance Playbooks are complemented by additional playbooks

specifying required actions, including the (i) Bankruptcy Playbook, (ii) “Funding Playbook,” (iii)

“Financial Stress Communications Playbook” and (iv) “Employee Retention Playbook.”

The Governance Playbooks demonstrate the Firm’s analysis of appropriate Governance Mechanisms

throughout the stress continuum. The Governance Playbooks set out resolution-related considerations

for MS Parent, the Funding IHC, and each Material Entity, including the strategic decisions and actions

expected to be made by the Boards and the consistency of such decisions with the Directors’ fiduciary

duties.

The Governance Playbooks serve as a framework for the decision-making process the Boards may go

through in a resolution scenario. However, actual decisions would be made in light of the facts and

circumstances existing at the time, after due consideration by the Boards and based on: (i) the

information before the Boards, (ii) their obligations under the Support Agreement and (iii) the exercise of

their fiduciary duties. If MS Parent or the Material Entities were to experience Material Financial Distress,

the relevant directors would likely consult with external counsel in order to take actions consistent with the

exercise of their fiduciary duties.

The Firm has conducted a conflicts of interest analysis, confirmed that there is currently no overlap in

membership between the MS Parent Board and any Material Entity Board (including the Funding IHC)

and identified all instances where an individual currently serves on the Board of two or more Material

Entities.

The Support Agreement substantially reduces the potential for conflicts of interest among MS Parent, the

Funding IHC and the Material Entities. The Support Agreement is executed in BAU, when the interests of

MS Parent, the Funding IHC and the Material Entities are aligned. During Recovery and the Runway

Period, even if the interests of MS Parent, the Funding IHC and the Material Entities with respect to the

downstreaming of financial resources might conflict, MS Parent and the Funding IHC each have secured

contractual obligations to provide financial resources to the Material Entities. Conflicts between Material

Entities are substantially eliminated by the Firm’s SPOE Resolution Strategy, as all Material Entities will

benefit from the implementation of the Resolution Strategy. Triggers are set early enough so that all

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Material Entities will remain solvent and have adequate resources to perform both inter-company and

third-party obligations.

However, while the likelihood of conflicts is remote, the Firm has conflict of interest identification and

director resignation processes to mitigate conflicts in the unlikely event that they arise.

The Firm has also briefed the Boards of MS Parent and the Material Entities on, among other things, the

Resolution Strategy, Support Agreement Framework, Governance Playbooks and Financial Resource

Positioning Framework and made enhancements and clarifications to the Governance Playbooks based

on those discussions.

4.1.2. Legal Entity Rationalization

In conducting its global business operations, the Firm utilizes a network of legal entities that are aligned

with and support the operations of the Firm’s Core Business Lines, to service its institutional, corporate

and retail clients from around the world. While the Firm’s legal entity structure is driven by its regulatory,

client, business, financial and other needs, the Firm recognizes the importance of maintaining a rational

and resolvable legal entity structure as the Firm’s business strategy and external operating environments

evolve. The maintenance of a rational legal entity structure supports the Firm’s resolvability objectives, by

allowing for transparency on the role that each legal entity serves for the Firm and by facilitating the

provision of financial resources to those legal entities that are vital to the execution of the Resolution

Strategy.

In an effort to address the shortcoming related to the risk of misallocating resources to Material Entities in

resolution and complexity of its Material Entity ownership structure, the Firm has:

• Enhanced its LER Criteria and related processes;

• Established a funding vehicle to preserve the flexibility to manage financial resources as needed

to the Material Entities in resolution; and

• Reduced complexity in its legal entity structure through an ongoing process to consolidate

ownership of each Material Entity in a single ownership line and rationalize the population of

Material Entities and intermediate legal entities.

For the 2019 Plan, the Firm enhanced its LER Criteria framework by differentiating between structural

LER Criteria, and other non-structural legal entity and resolvability management standards overseen by

relevant governance bodies aligned to their BAU responsibilities. To evaluate its adherence to the LER

Criteria and non-structural standards in a transparent, repeatable and measurable manner, the Firm

executed an associated assessment framework. This assessment supports updates to the LER Criteria

and non-structural standards required as a result of substantial changes in the Firm’s business model or

in the external operating environment.

In support of the legal entity governance framework and the simplification of its business model, the Firm

continues its efforts to reduce the number of legal entities within its structure, so that the remaining legal

entities conduct activities and operations that are clearly in support of the Core Business Lines. As of

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December 31, 2018, the Firm held 735 consolidated legal entities within its structure, a 40% reduction

from 1,235 as of December 31, 2007. In addition, the Firm has enhanced its annual legal entity closure

pipeline process to incorporate quantitative screens that identify potential dormant and redundant entity

candidates. The Firm continues to pursue opportunities to eliminate complexity within its legal entity

structure.

4.1.2.1. Funding IHC

To provide funding flexibility and to enhance the ability to allocate financial resources as needed to the

Material Entities in BAU and throughout the stress continuum, including in resolution, the Firm

implemented the Funding IHC in 2019. The Funding IHC, Morgan Stanley Holdings LLC, allows for the

as-needed allocation of financial resources to the Material Entities after the bankruptcy filing of MS

Parent. The Funding IHC reduces reliance on the precision of resolution execution need estimates for

individual Material Entities and offers additional mitigation to potential creditor challenge.

The Funding IHC is a 100% owned, direct subsidiary of MS Parent with no capital ownership in any

entities. The Funding IHC was designated an MSE in March 2019 as part of the Firm’s annual Material

Entity Designation Process and adheres to all of the Firm’s Service Company Principles. The ownership

structure of the Funding IHC is shown in Exhibit 4-2.

Exhibit 4-2. Funding IHC Ownership Structure

The Funding IHC will not have third-party creditors and therefore has no requirement to be externally

rated.

MS Parent has made an initial contribution to the Funding IHC and, under the terms of the Support

Agreement, will provide additional contributions to maintain adequate funding in exchange for a funding

note. MS Parent will be able to draw down on the Funding IHC resources through a committed line of

credit. The Funding IHC will provide support to certain of the Material Entities prior to MS Parent’s failure

and capital and liquidity to all Material Entities following an MS Parent bankruptcy filing.

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The Firm developed financial, legal and operational capabilities to embed the Funding IHC into existing

Firm frameworks.

4.1.2.2. Legal Entity Restructurings

The Firm addressed the shortcoming related to the risk of misallocating resources to Material Entities in

resolution and complexity in its Material Entity ownership structure by continuing to execute on its

ongoing process to consolidate ownership of each Material Entity in a single ownership line and

rationalize the population of Material Entities and intermediate legal entities.

The Firm undertook an extensive analysis to identify opportunities to rationalize its Material Entity and

overall legal entity population and to reduce the complexity of its legal entity structure. Where feasible at

the time of the analysis, the Firm also undertook efforts to implement improvements based on this

analysis. The Firm is committed to ongoing improvements and will continue to review its structures to

accomplish a simple, rationale and resolvable legal entity structure.

Strong senior management engagement and robust governance structures were in place to oversee and

direct the shortcoming remediation and legal entity rationalization efforts.

4.1.2.3. LER Criteria and Standards

The Firm remains committed to the maintenance of its rational and resolvable legal entity structure as the

Firm's business strategy and external operating environments evolve. The Firm demonstrated this

commitment through its continued efforts to enhance its framework for managing the Firm’s legal entity

structure. For the 2019 Plan, the Firm has enhanced its LER Criteria framework to be more direct and

actively support the reduction of complexity within its legal entity structure. The Firm’s LER Criteria were

changed to differentiate between the legal entity structure related criteria and other non-structural legal

entity and resolvability management standards, with oversight provided by the relevant governance

bodies in line with existing oversight responsibilities. The respective governance bodies are responsible

for reviewing and approving the LER Criteria and non-structural standards on at least an annual basis.

The Firm ensures a heightened level of review and challenge of its legal entity structural related findings

and enhanced monitoring of remediation efforts.

While the structural LER Criteria and related non-structural standards incorporate a broad set of

considerations related to how the Firm should maintain a rational and resolvable legal entity structure, the

actionability of these LER Criteria and non-structural standards are assessed through the Firm’s “LER

Assessment Framework.” The LER Assessment Framework provides a transparent, repeatable and

measurable process for the Firm to assess its adherence to the LER Criteria and non-structural standards

and identifies any potential areas requiring remediation efforts and/or enhancements to strengthen its

adherence. This section provides an overview of the Firm’s LER Assessment Framework utilized in 2019.

The LER Assessment Framework consists of (i) governance process, including the governance structure

utilized for legal entity structure-related oversight and associated roles and responsibilities and non-

structural related oversight and associated roles and responsibilities and (ii) LER assessment approach.

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As a result of its 2019 LER assessment process, the Firm concluded that it adheres substantially to the

LER Criteria and non-structural standards. Where necessary, the Firm identified exceptions and required

remediation efforts.

4.1.3. Separability

The Firm is well positioned to execute on the WM and IM sales due to its experience as a leading M&A

advisory firm and as a party to investment management and retail brokerage M&A transactions, including

the Firm’s entry into a joint venture by purchasing a controlling stake in Smith Barney in 2009 and its

subsequent purchase of the minority stake to own WM in its entirety, as well as the sale of its Retail Asset

Management business to Invesco Ltd. in 2010.21 The extensive M&A experience housed within the Firm

has contributed to the success of these efforts, and the Firm expects to leverage this experience in any

future divestitures, including in a resolution scenario.

In particular, divestiture efforts would be supported by Firm Strategy and Execution (“FSE”), a function

dedicated to Firm M&A activities, and the Firm’s Investment Banking Division (“IBD”), which is a

consistent market leader in M&A advisory services. The Firm’s planning to facilitate the separation of its

WM and IM businesses in a resolution scenario draws upon this extensive experience and, as described

further below, the Firm’s deep understanding of sale processes has resulted in the identification and

enhancement of certain preparatory steps that could accelerate timing of a sale process.

The Firm’s Separability capabilities are designed to facilitate the timely divestiture of WM and IM while

providing for meaningful optionality under different market conditions. The Firm’s Separability capabilities

include:

• Detailed identification of each sale package;

• The development of an enhanced Marketing and Sale Playbook, which provides an overview of

the process to be executed upon an actual sale of potential sale candidates;

• Preparation of buyer due diligence materials;

• Carve-out financial statements for each of WM and IM;

• Sale package valuations based on a valuation methodology that takes into account a variety of

severely stressed operating conditions;

• Assessment of the impact of executing the WM and IM sales from a business, operational,

financial and Critical Function perspective;

• Legal risk assessments; and

21 This transaction was executed during a period of Firm and market-wide distress, which may be similar to the conditions that could exist in a resolution scenario.

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• Capabilities to populate a data room in a timely manner with information pertinent to the WM and

IM sales.

Sale Structures

The WM and IM sale packages are consistent with the Firm’s LER approach to maintaining a rational and

resolvable legal entity structure in which legal entities are aligned with, and support the operations of, the

Firm’s Core Business Lines. The Firm has developed LER Criteria to support separability of the Firm’s

identified sale candidates.

Marketing and Sale Playbook and Other Preparatory Actions

Marketing and Sale Playbook

The Firm also maintains a Marketing and Sale Playbook, which describes the marketing and sale process

that the Firm would expect to execute in a resolution scenario. In identifying the expected sale process

steps, FSE drew on the Firm’s past divestiture experience, including existing marketing, governance and

communications processes. The Marketing and Sale Playbook is documented by FSE and describes the

(i) preparation, (ii) marketing, diligence and negotiation and (iii) closing and post-closing phases. The

playbook also identifies the potential buyer universe and describes valuation analyses and expected sale

proceeds.

Sale Package Buyer Due Diligence Materials

The Firm developed sale package buyer due diligence materials, which involved defining the in-scope

business and functional capabilities for each sale candidate and establishing an approach for separating

potential sale candidates from the Firm. The exact nature of the sales is expected to be contingent, in

many respects, on the buyer type. The sale package buyer documents have therefore been largely

prepared based on the expected buyer type, but the separability analysis maintains flexibility to

accommodate a wide range of strategic and financial buyers. The WM and IM buyer due diligence

materials provide an overview of each business, including the related separability considerations, to

support buyer due diligence.

The Firm has built upon existing elements of the 2019 Plan, including operational mapping, employee

retention and contract remediation, to identify key front- and back-office dependencies and develop a

strategy to maintain service continuity and retain transaction value. Specifically, the Firm identified

(i) dedicated personnel, vendor services, technology, facilities and related contracts likely to be

transferred to buyers on day one and (ii) shared services and resources likely to be provided through

TSAs between the buyers and operationally and financially resilient MSEs with existing SLAs between

such MSEs and other Material Entities serving as a basis for TSA discussions with prospective buyers.

Carve-Out Financial Statements

Carve-out financial statements have been prepared to serve as a basis for valuing WM and IM. The

carve-out financials were prepared by WM and IM Finance, the divisions responsible for producing the

related business and Material Entity financials in BAU. The carve-out financial statements present the

operating results of each business as derived from the financial statements of the WM and IM

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businesses, including their financial information, financial position, financial adjustments and performance

as included in the Firm’s Form 10-K.

Separability Impact Assessment and Legal Risk Assessment

The Firm has performed an impact assessment of potential risks that may present themselves in the

context of the execution of the WM and IM sales. WM, IM, related support and control functions,

Corporate Treasury, FSE and IBD, among others, collaborated to identify potential risks to execution of

the WM and IM sales and develop strategies to mitigate the risk across the business, operational,

financial and legal dimensions and with respect to potential impacts on Critical Functions.

The Firm’s impact assessment analysis and legal risk assessment demonstrate that the sales can be

executed in a timely manner, contemporaneously and result in no disruption to execution of the ISG

Solvent Wind Down. The Support Agreement Framework, in combination with the Firm’s resolution

financial analysis, demonstrate that WM and IM Material Entities will be provided with required capital and

liquidity resources to maintain solvency and continue to perform on obligations to customers and

counterparties as they come due during the Resolution Period. With respect to the remaining MOEs that

will be part of the ISG Solvent Wind Down and the MSEs that will continue providing critical services

during the Resolution Period, none of these Material Entities would be reliant on WM or IM sale proceeds

as a source of funding to satisfy their estimated RCEN and RLEN, and none of these Material Entities are

dependent on WM and IM for the execution of the Resolution Strategy. In addition, the sales should not

impede the continuity of Critical Functions with associated operational continuity maintained through sale

and transition of requisite services to the buyers. Finally, the Firm’s Critical Contracts are structured to

facilitate the sales and the Firm expects any Board or regulatory approvals necessary to affect the sales

would be obtained in a timely manner.

Virtual Data Rooms

As a global investment bank with a leading M&A franchise and that engages in due diligence for M&A

transactions related to businesses contemplated for disposal or acquisition, the Firm has the capability to

populate a virtual data room in a timely manner with information pertinent to a potential divestiture of

either business. These capabilities can be leveraged during periods of financial stress, including

following the occurrence of a Calculation Trigger, Distress Trigger or Support Trigger.

4.2. Financial Adequacy

To support its financial resiliency and resolvability, the Firm maintains sufficient financial resources and a

suite of capital- and liquidity-related capabilities. In BAU and stress scenarios, the Firm’s financial

resources allow for absorption of a significant amount of capital losses or liquidity outflows without

causing a material impact to the business operations of the Firm and its capabilities allow for the proper

monitoring and management any associated risks. In the event of the Firm’s failure, these enhancements

help ensure that the Material Entities will remain adequately capitalized and have sufficient liquidity

throughout the Resolution Period, resulting in an orderly resolution with minimal impact to global financial

markets.

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As a foundation, the Firm maintains substantial reserves of financial resources, which are sufficient to

cover upfront losses, outflows and losses during the Runway Period, RLEN and RCEN, as well as

durable sources of funding, with the following as of December 31, 2018:

• Loss absorbing capacity that is compliant with final total loss absorbing capacity (“TLAC”) rules at

of the Firm level equal to $203 billion of external TLAC, consisting of $62 billion in Common

Equity Tier 1 Capital, $9 billion in preferred shares and $133 billion of long-term debt;

• Firm-consolidated global liquidity reserves (“GLR”) of $250 billion; and

• No unsecured debt issuances by MS Parent with original maturities of less than one year.

To supplement these financial resources, the Firm’s capabilities cover the areas of Resolution Capital

Adequacy and Positioning (“RCAP”), “RCAP*” (which excludes upfront losses that are included within

RCAP) and RCEN, including “Resolution Capital Minimum” (the capital required for the Material Entity

to remain well-capitalized during the Resolution Period), as related to Capital and RLAP, Minimum

Operating Liquidity (“MOL”) and RLEN as related to Liquidity. The Firm also introduced additional capital

and liquidity metrics in connection with the establishment and operationalization of the Funding IHC as a

resolution funding vehicle. The Firm holds a percentage of capital and liquidity resolution needs at the

MOEs pursuant to the Positioning Framework which has been enhanced due, in part, to the introduction

of the Funding IHC.

The Firm’s RCAP capabilities inform the Firm’s determination of the appropriate positioning of the ILAC

between MS Parent and each of the MOEs and the Firm’s RLEN capabilities inform the Firm’s

determination of the appropriate positioning of liquidity between MS Parent and each of the Material

Entities (including the Funding IHC).

Prior to the 2019 Plan submission, the Firm enhanced its capabilities as related to Capital and Liquidity,

which currently consist of:

• Capital:

o RCAP Adequacy: Significant levels of external TLAC, which currently exceed total TLAC and

long-term debt requirements, with full compliance with all final TLAC rule requirements as of

January 1, 2019;

o RCAP*: Establishes appropriate positioning of ILAC at MOEs;

o RCEN: Methodology to estimate the capital requirements of each Material Entity in resolution,

including Resolution Capital Minimum and capital to absorb cumulative losses while

maintaining a well-capitalized status; and

o Near-Term RCEN: Estimates of RCEN over the forecast horizon used in resolution.

• Liquidity:

o RLAP Adequacy:

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Incorporated into the Firm’s liquidity stress testing framework of a 30-day liquidity stress

test with ring-fencing impacts;

Maintenance of GLR in excess of liquidity needs under all scenarios within the liquidity

stress testing framework; and

Inter-Affiliate Frictions: Identification, assessment and mitigation of inter-affiliate frictions

that may give rise to liquidity risk for the Firm.

o RLEN: Methodology to estimate the liquidity requirements of each Material Entity in

resolution, including peak funding requirements through the Resolution Period and ring-

fenced MOL, with impacts from both external and inter-affiliate exposures;

o MOL: Methodology to estimate the liquidity required to support the daily activities of each

Material Entity. Ring fenced MOL includes MOL plus any additional requirements that may

result from assumed ring-fencing (used in RLAP and RLEN estimates); and

o Near-Term RLEN: Estimates of RLEN over the forecast horizon used in resolution.

• Positioning of Financial Resources:

o Positioning Framework applies a consistent positioning percentage across RCAP*, RLAP,

RCEN and RLEN, taking into account regulatory requirements. The Positioning Framework

determines appropriate capital and liquidity between MS Parent and each of the Material

Entities, resulting in positioning of a significant amount of liquidity and ILAC directly at the

Material Entities. The Funding IHC is positioned with a reserve amount of liquidity.

• Estimating Resolution Execution Needs:

o Enhancement of the Resolution Financial Model with which the Firm produces estimates of

RCEN and RLEN for each of its Material Entities, as described in 4.2.3 Resolution Financial

Model.

• Downstreaming of Financial Resources Prior to an MS Parent Bankruptcy Filing:

o Funding Playbook: Enhancement of the playbook that sets forth the processes, roles and

responsibilities, systems and reporting and governance related to the Firm’s liquidity and

capital management across a range of financial conditions, including along the resolution

trigger continuum.

The following sections discuss the capabilities within Liquidity, Capital, and the positioning and

downstreaming of these financial resources in further detail.

4.2.1. Liquidity

The Firm maintains sufficient financial capacity and a suite of capital and liquidity-related capabilities to

support its financial resiliency and resolvability. The Firm’s financial capacity allows for absorption of a

significant amount of capital losses and liquidity outflows without causing a material impact to the

business operations of the Firm and its capabilities allow for the proper monitoring and management of

associated risks. In the event of MS Parent’s failure, the Material Entities will remain adequately

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capitalized and have sufficient liquidity throughout the Resolution Period on an ongoing and as needed

basis through the Funding IHC, resulting in a rapid and orderly resolution with minimal impact to global

financial markets.

As a foundation, the Firm maintains substantial reserves of financial resources, which are sufficient to

cover losses and liquidity outflows during the Runway Period and Resolution Period. The Firm’s liquidity

capabilities cover the areas of RLAP and RLEN.

• MOL = intraday and end of day liquidity usage to support daily operations;

• Ring-fenced MOL = MOL plus any additional requirements that may result from assumed ring-

fencing;

• RLAP = ring-fenced MOL plus ILST contingencies assuming ring-fencing;

• RLEN = ring-fenced MOL plus peak cumulative liquidity outflows in the Resolution Period; and22

• Near-Term RLEN = ring-fenced MOL plus peak cumulative liquidity outflows over the forecast

horizon used during the Resolution Period.

RLAP consists of maintaining adequate levels of liquidity such that the stand-alone liquidity position of

each Material Entity would be sufficient to meet liquidity outflows experienced over a 30-day period of

idiosyncratic stress (including under a ring-fencing scenario). RLEN provides the estimate of the amount

of liquidity that each Material Entity requires to operate during the Resolution Period in accordance with

the Resolution Strategy. The Firm holds a percentage of resolution needs at the MOEs and the rest at

MS Parent pursuant to the Positioning Framework.

Under severe stress conditions (including a resolution scenario), the Firm may experience additional

frictions related to inter-affiliate funding, including ring-fencing of its Material Entities. As a result, to

properly assess the stand-alone liquidity needs of its Material Entities, the Firm considers a ring-fencing

scenario for both RLAP and RLEN requirements. The Firm defines ring-fencing as a global, concurrent

regulatory event impacting all of the Firm’s legal entities, wherein inter-affiliate relationships are not

expected to persist subsequent to contractual maturities. In applying this scenario, the Firm incorporates

additional inter-affiliate considerations within its RLAP and RLEN requirements.

4.2.1.1. RLAP: Adequacy

The Firm’s RLAP model, as part of the Firm’s ILST infrastructure, assesses the stand-alone net liquidity

position of Material Entities and the entire Firm. It ensures that liquidity is readily available to meet

forecasted needs. The RLAP model covers a period of 30 days and reflects the idiosyncratic liquidity risk

profile of the Firm by covering the following three components:

22 Ring-fenced MOL for RLEN and Near-Term RLEN excludes operating expenses so as not to double count with the expenses modeling that is included in each of RLEN and Near-Term RLEN.

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• Ring-fenced MOL, which represents the Firm’s MOL required under a ring-fencing scenario (e.g.,

no intra-day sharing of resources across legal entities and MS Parent);

• Base contingencies, which include external and inter-affiliate liquidity outflow contingencies that

are also included in the Firm’s other ILST scenarios; and

• Ring-fencing contingencies, which include inter-affiliate contingencies taking into account the

potential impact of a ring-fencing scenario (i.e., treating inter-affiliate exposures in the same

manner as third-party exposures).

4.2.1.2. RLEN

RLEN represents the amount of liquidity required by each Material Entity to stabilize the entity

subsequent to the failure of the Firm and to allow the entity to operate post-filing to execute the

Resolution Strategy. For each Material Entity, the Firm defines RLEN to consist of:

• Ring-fenced MOL, which consists of an MOL, exclusive of operating expenses (because

operating expenses are accounted for as part of the peak funding requirement in RLEN), required

under the ring-fencing scenario; and

• Peak funding requirement, which consists of the peak cumulative daily liquidity outflows during

the Resolution Period.

The Firm utilizes its Resolution Financial Model to estimate the financial resources required for each

Material Entity within the Runway Period and the Resolution Period, including estimates of RLEN. Ring-

fenced MOL is assumed to remain static throughout the Resolution Period. The day on which a Material

Entity experiences its peak funding requirement during the Resolution Period is unique to that entity, and

will be determined by its activities, positions and whether it is wound down or sold under the Resolution

Strategy.

Peak Funding Requirement

For each Material Entity, the peak funding requirement covers the entirety of the Resolution Period. The

Firm expects its Stabilization Period to commence with an MS Parent bankruptcy filing and last for six

weeks, in line with the length of time that the Firm expects its PB clients to transfer their assets away from

the Firm. However, depending on the nature of its underlying activities and resulting exposures, a

Material Entity may experience its peak funding requirement during or subsequent to the Stabilization

Period.

4.2.1.3. Minimum Operating Liquidity (MOL)

The Firm uses liquidity on an intraday and end-of-day basis to support its daily operations. Intraday

liquidity usage includes usage of the Firm's own cash, usage of unsecured intraday credit from third

parties and collateral requirements to support secured intraday credit from third parties. End-of-day

liquidity usage includes overnight usage of the Firm's own cash or credit from third parties.

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The Firm maintains an MOL methodology that projects MOL needs for Material Entities under various

scenarios, including those with and without assumptions of ring-fencing. The Firm refers to MOL in

scenarios that assume ring-fencing (i.e., RLAP, RLEN) as ring-fenced MOL. The Firm’s MOL

methodology is informed by its intraday and end-of-day liquidity uses noted above. The current

methodology is conservative in that MOL is held constant throughout the forecasting horizons.

MOE MOL captures: (i) intraday cash and working capital needs, (ii) intraday collateral and pre-funding

requirements, (iii) inter-affiliate funding frictions (as applicable) and (iv) operating expenses.

4.2.2. Capital

The Firm maintains sufficient financial capacity and a suite of capital and liquidity-related capabilities to

support its financial resiliency and resolvability. The Firm’s financial capacity allows for absorption of a

significant amount of capital losses and liquidity outflows without causing a material impact to the

business operations of the Firm and its capabilities allow for the proper monitoring and management of

associated risks. In the event of MS Parent’s failure, the Material Entities will remain adequately

capitalized and have sufficient liquidity throughout the Resolution Period because of support provided by

the Funding IHC, resulting in a rapid and orderly resolution with minimal impact to global financial

markets.

As a foundation, the Firm maintains substantial reserves of financial resources, which are sufficient to

cover losses and liquidity outflows during the Runway Period and Resolution Period. The Firm’s capital

capabilities cover the areas of RCAP and RCEN, including Resolution Capital Minimum which is

representative of a level of capital to meet or exceed applicable regulatory capital requirements for well

capitalized status and maintain market confidence throughout the Resolution Period

• RCEN = Resolution Capital Minimum plus peak cumulative losses in the Resolution Period;

• Near-Term RCEN = Resolution Capital Minimum plus peak cumulative losses over the forecast

horizon used during the Resolution Period;

• RCAP = upfront losses plus Runway Period losses plus RCEN; and

• RCAP* = Runway Period losses plus RCEN.

RCAP is designed to maintain adequate levels of external TLAC to support the Firm’s ability to absorb

losses in stress scenarios. RCAP* is used to establish the appropriate positioning of ILAC at MOEs.

RCEN provides an estimate of the amount of capital that each Material Entity requires for the execution of

the Resolution Strategy, while maintaining capital levels that allow them to operate or to be wound down

in a rapid and orderly manner. The Firm holds a percentage of resolution needs at the MOEs and the

rest at MS Parent pursuant to its Positioning Framework.

The Firm’s capital-specific capabilities consist of (i) maintaining a significant amount of external TLAC in

conformity with the final TLAC rule requirements, (ii) monitoring the ILAC positioned at the MOEs,

(iii) using the Resolution Financial Model to estimate Material Entity RCEN and (iv) incorporating its

RCEN estimates into its Trigger and Escalation Framework and Support Agreement.

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4.2.2.1. Resolution Capital Adequacy and Positioning (RCAP): Adequacy

RCAP is equal to the sum of upfront losses plus Runway Period losses plus RCEN. The Firm has an

adequate amount of loss absorbing capacity to recapitalize Material Entities. RCAP* is equal to Runway

Period losses plus RCEN and informs the positioning of ILAC at the MOEs.

Upfront losses included in RCAP are used as a means to create a hypothetical failure scenario and

therefore are excluded from the RCAP* that the Firm uses to inform ILAC positioning. Runway Period

losses are estimated by the Resolution Financial Model. RCEN consists of the MOEs’ resolution capital

minimum plus peak cumulative daily losses in the Resolution Period.

The Firm has sufficient financial capacity to satisfy the RCAP requirements, as it currently maintains a

significant amount of external TLAC. As of December 31, 2018, the Firm held $203 billion of external

TLAC, of which $133 billion was long-term debt. These resources would enable the Firm to recapitalize

its Material Entities to adequate levels and thereby enable the Material Entities to maintain operations in

the Resolution Period.

Pursuant to its Positioning Framework, the Firm positions an appropriate amount of ILAC at its MOEs.

The Firm defines ILAC of an MOE as the sum of its equity and intercompany debts owed to MS Parent,

the Funding IHC or other entities that can be forgiven pursuant to the Support Agreement.

4.2.2.2. Resolution Capital Execution Needs (RCEN)

RCEN represents the amount of internal loss absorbing capacity required by each Material Entity to

stabilize the entity subsequent to the failure of the Firm and to allow the entity to operate post-filing to

execute the Resolution Strategy. For each Material Entity, the Firm defines RCEN to consist of:

• Resolution Capital Minimum, which is the capital required for the Material Entity to remain well-

capitalized during the Resolution Period; and

• Capital required to absorb the Material Entity’s peak cumulative losses following an MS Parent

bankruptcy filing.

The Firm utilizes its Resolution Financial Model to estimate the financial resources required for each

Material Entity within the Runway Period and the Resolution Period, including estimates of RCEN. The

day on which a Material Entity experiences its peak RCEN requirement during the Resolution Period is

unique to that entity, and will be determined by its activities, positions and whether it is wound down or

sold.

The following sections provide overviews of the Firm’s methodology for the two components of RCEN.

Resolution Capital Minimum

The Firm determines Resolution Capital Minimums for the Material Entities such that they can remain

above any applicable regulatory minima and maintain a well-capitalized status within the context of the

Resolution Strategy. The Firm starts with applicable regulatory requirements or other relevant

requirements to determine appropriate well-capitalized levels relative to capital levels to which the Firm

manages in the normal course. In the absence of regulatory requirements, the Firm determines

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appropriate well-capitalized levels based on the nature of the entity’s activities and third-party

relationships. In doing so, the Firm would maintain levels of capital across all tiers and requirements that

avoid insolvency and any actions by its regulator or board that may run contrary to successful Resolution

Strategy execution.

Peak Cumulative Losses

RCEN estimates take into account each Material Entity’s ability to absorb cumulative losses after MS

Parent’s bankruptcy filing. Prior to an MS Parent bankruptcy filing, MS Parent or the Funding IHC can

contribute incremental capital to the Material Entities using two approaches: (i) a non-cash capital

contribution, which may take the form of forgiveness of existing loans to the Material Entity or (ii) a cash

contribution in the form of equity or other capital infusion. As such, the Firm considers the following

instruments as part of ILAC:

• Equity; and

• Inter-company debts owed to MS Parent, the Funding IHC or other entities that can be forgiven

and converted to equity pursuant to the Support Agreement.

The form in which MS Parent or the Funding IHC recapitalizes a Material Entity during the Runway Period

or Resolution Period will depend on the various constraints facing the Material Entity, including the

amount of ILAC positioned at the entity that has not been forgiven and converted to equity, any Generally

Accepted Accounting Principles (“GAAP”) equity or subordinated debt requirements and whether the

entity has sufficient liquidity to meet its RLEN requirements. To recapitalize a Material Entity, MS Parent

or the Funding IHC can (i) convert the available ILAC positioned at the entity to equity or subordinated

debt, as required, and/or (ii) contribute capital to satisfy any equity or subordinated debt requirements.

These recapitalizations are facilitated by the Support Agreement and allow each Material Entity to meet

its RCEN requirements during the Resolution Period.

For the ISG MOEs, which wind down over the Resolution Period, losses that may result from cash assets,

derivatives, receivables and payables and expenses represent the main drivers of cumulative losses. For

WM and IM Material Entities, which are sold during the Resolution Period, the going-concern strategy for

these entities results in losses that are more in line with estimates from the Firm’s internal stress testing.

4.2.3. Resolution Financial Model

The Firm utilizes its Resolution Financial Model to estimate the RLEN and RCEN required for each

Material Entity in resolution. The Resolution Financial Model sources underlying data related to the

positions, balance sheet and income statements of the Firm’s Material Entities to estimate required

resources necessary for the successful wind down of the ISG MOEs and the support of the WM and IM

businesses until their points of sale. The model provides daily liquidity flows and profit and loss (“P&L”)

estimates, with associated liquidity and capital requirements, for each Material Entity over the Resolution

Period and quantifies the size and composition of any residual portfolio at the end of the Resolution

Period.

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Outputs from the model are integrated into the Firm’s Governance Mechanisms, as they inform the timing

of the occurrence of a Support Trigger. To support proper oversight of the Resolution Financial Model,

the Firm’s independent model validation group, Model Risk Management (“MRM”), reviews and validates

underlying modules within the Resolution Financial Model. The Liquidity Risk Department (“LRD”) also

reviews the methodology and results from the Resolution Financial Model. All model results are subject

to the “Resolution Plan Review and Challenge Framework.” The Firm has made significant strategic

enhancements to its RLEN and RCEN modeling and the 2019 Plan includes initial results from the new

models.

2019 Enhancements

The Firm has made significant enhancements to its Resolution Financial Model. The enhancements that

improve the Firm’s RLEN and RCEN modeling are concentrated in the Firm’s derivatives and trading wind

down capabilities and resolution liquidity modeling. These enhanced derivatives capabilities can be used

to:

• Segment the Firmwide over-the-counter (“OTC”) derivatives portfolio, leveraging a new

position-level database that links Finance and Risk data and covers all derivatives positions at the

Firm incorporating a wide variety of dimensions needed to support segmentation (including but

not limited to those outlined in the 2019 Guidance). Segmentation rules are provided by the front-

office professionals responsible for originating and managing derivatives risk in BAU, and are

subject to a rigorous review and challenge process;

• Apply the Firm’s ease of exit framework to categorize positions based on the expected ability

(both financial and operational) to unwind those positions in Resolution. The ease of exit

framework is applied at the position-level using a subset of the attributes used for segmentation;

• Identify the residual portfolio of positions that could remain at the end of the wind-down, which

consists of very hard to exit positions which do not terminate or mature over the course of the

wind-down. As discussed further below, the Firm expects to be able to unwind the vast majority

of its derivatives positions under its Resolution Strategy and has demonstrated that the potential

residual positions remaining at the end of the wind-down would be non-systemic;

• Apply the Firm’s exit cost methodologies, which include granular, bottom-up forecasts of

novation costs (capital-based and risk-based), hedging costs, losses due to basis and un-

hedgeable risks, and balance sheet and liquidity impacts. These methodologies leverage the

same position-level dataset used for segmentation, allowing for estimation of costs at the

segmentation levels that the Firm would likely exit positions; and

• Perform sensitivity analysis with respect to the key inputs and assumptions underlying its

resolution financial forecasts. The Firm’s Derivatives Segmentation and Forecasting capabilities

are flexible and provide the ability to rapidly regenerate results based on changes to data or

assumptions;

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• Segment and analyze the Firm’s PB customer account balances based on a set of well-

defined and consistently applied segmentation criteria, representing a range in potential transfer

speeds; and

• Assess the Firm’s ability to transfer PB customer accounts based on the nature of the

transfer process and balances, including long and short positions, portfolio liquidity, customer-to-

customer internalization and potential operational challenges.

The RLST is a new component of the Resolution Financial Model and includes enhanced methodologies

for liquidity forecasting in resolution. Enhancements since the 2017 Plan include full integration of PB,

cash assets and secured funding wind down modeling, representing material drivers of RLEN. The RLST

includes daily modeling of sources and uses of collateral on a Committee on Uniform Securities

Identification Procedures (“CUSIP”)-level, with replication of the Firm’s “funding waterfall” to calculate the

net liquidity needs of each entity. In addition to the derivatives and RLST enhancements, the Firm made

certain other enhancements to the Resolution Financial Model that improve the Firm’s RLEN and RCEN

capabilities, leverage best practices and increase internal consistency.

Sensitivity Analysis

The Firm has conducted sensitivity analyses on certain material RLEN and RCEN drivers, including those

that are more subjective in nature. The sensitivity analyses represent additional or different stresses from

the Firm’s base resolution scenario. The outcomes of the sensitivity analyses are used to assess the

appropriateness of the Firm’s RLEN and RCEN methodologies.

Governance

The Resolution Financial Model governance framework covers the methodology, process, results, data

and infrastructure for the modeling process and associated results. Each model within the Resolution

Financial Model undergoes review and challenge by various front office and support function subject

matter experts, including LRD, and an annual review and validation process by MRM. Review and

challenge participants challenge the Firm’s assumptions and methodologies and review modeling results.

4.2.4. Positioning Framework

The Firm’s Positioning Framework determines the amount of liquidity and loss absorbing capacity to hold

at MS Parent and each of its Material Entities.

The Positioning Framework:

• Balances the certainty associated with positioning resources directly at Material Entities with the

flexibility provided by holding resources at MS Parent or the Funding IHC to meet unanticipated

losses or outflows at the Material Entities;

• Ensures that liquidity is readily available to meet outflows over a period of 30 days in a scenario

reflecting the idiosyncratic liquidity profile and risk of the Firm, assuming inter-affiliate frictions and

ring-fencing (i.e., RLAP);

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• Complements the Firm’s external TLAC with appropriate positioning of additional ILAC at the

MOEs;

• Ensures working capital is readily available for MSEs to mitigate any unanticipated service

payment delays or disruptions and/or intraday needs;

• Ensures sufficient resources are maintained within the Firm to meet Material Entity resolution

execution needs; and

• Accounts for other requirements (e.g., regulatory requirements).

The Firm made several key enhancements to its Positioning Framework since 2017. Changes in

calibration of the Firm’s positioning are partially driven by the introduction of the Funding IHC, which

facilitates funding flexibility and resiliency without compromising the certainty associated with positioning

resources directly at Material Entities. The Firm implemented the Funding IHC to provide funding

flexibility during stress and in resolution and to mitigate the risk of misallocating resources. The Funding

IHC has the obligation and capability to provide Near-Term RLEN and Near-Term RCEN to Material

Entities on an as needed basis starting upon the occurrence of a Support Trigger and throughout the

Resolution Period.

The Positioning Framework:

• Accounts for resolution needs and other entity requirements;

• Facilitates resiliency with a percentage of resolution needs at Material Entities and the rest at MS

Parent or the Funding IHC; and

• Is consistent with 2019 Support Agreement obligations throughout the continuum and regulatory

guidance on ILAC and funding flexibility in resolution.

MOE Liquidity Positioning

The Firm determines the amount of liquidity and ILAC to position at MOEs by assessing (i) quantitative

factors within three categories of: downstreaming frictions, complexity and interconnectedness, to arrive

at a positioning percentage to be applied to resolution requirements; and (ii) any additional requirements

based on the nature of the MOE (e.g., regulatory requirements).

MSE Liquidity Positioning

The Firm’s operational continuity strategy and associated SLAs helps to ensure the MOEs remain

contractually obligated to pay for services received from the MSEs throughout resolution. The MOE

RLEN and RCEN modeling account for these continued payments to the MSEs. The MSE modeling

nevertheless assumes any working capital positioned at the MSEs remains at the MSEs throughout

resolution. Any working capital positioned at the MSEs therefore represents a true “double count” in the

normal course and throughout resolution.

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The Firm nevertheless has conservatively sized working capital to position at the MSEs as a remote

contingency based upon the potentially most disruptive period during resolution, the first six week

Stabilization Period, while making other conservative assumptions and enhancements.

MS Parent Resolution Minimum Liquidity

To maintain flexibility and support the Firm’s financial resiliency to meet unanticipated liquidity outflows or

capital losses, the Firm maintains an “MS Parent Resolution Minimum Liquidity” reserve, consisting of

the following components:

• Liquidity held on behalf of the Material Entities, defined as the higher of:

o RLAP minus positioned liquidity at the Material Entity;

o RLEN minus positioned liquidity at the Material Entity;

o RCAP minus positioned ILAC at the Material Entity; and

o A specified percentage of total Material Entity RLAP;

• Liquidity held to cover MS Parent’s liquidity outflows under an RLAP scenario; and

• Liquidity held to cover bankruptcy proceeding costs for MS Parent.

Maintaining Resolvability of the Firm

The Firm has established and implemented a governance process around its Positioning Framework to

enhance resolvability. The Positioning Framework governance structure is integrated within the Firm’s

existing liquidity management policies, procedures, and data and reporting controls.

The positioning amounts are refreshed on a daily basis and the positioning percentages are refreshed on

an annual basis.

4.2.5. Funding Playbook

The Firm’s Funding Playbook documents the steps to estimate resolution-related liquidity and capital

requirements and downstream both liquidity and capital resources to its Material Entities, in BAU and

throughout the stress continuum including in resolution. The Funding Playbook sets forth the processes,

and practices governing the Firm’s liquidity and capital management across a range of financial

conditions, including the key areas of:

• Estimating the resolution execution needs (RLEN and RCEN and Near-Term RLEN and Near-

Term RCEN) for each Material Entity;

• Confirming the amount and location of the Firm’s liquid resources;

• Confirming current available capital and ILAC at each Material Entity;

• Determining amounts and form of infusions;

• Infusing liquidity into the Material Entities; and

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• Infusing capital into the Material Entities.

The Firm’s existing systems and processes, as well as the Support Agreement Framework, support the

contribution of the appropriate level of resources to the Material Entities throughout the stress continuum.

To provide funding flexibility and to enhance the ability to allocate financial resources as needed to the

Material Entities throughout the stress continuum, the Firm implemented the Funding IHC. The Funding

IHC, Morgan Stanley Holdings, LLC, allows for the as-needed allocation of financial resources to the

Material Entities after the bankruptcy filing of MS Parent. The Funding IHC reduces reliance on the

precision of resolution execution need estimates for individual Material Entities and offers additional

mitigation to potential creditor challenge.

As the Funding IHC has been designated an MSE and will survive in resolution until it is no longer

needed, it will have the capability to recycle funds among the Material Entities throughout the Resolution

Period. The infrastructure for all capabilities required during the Runway Period and Resolution Period

has been implemented.

4.2.6. Trigger and Escalation Framework and Support Agreement Incorporation

The Firm’s Trigger and Escalation Framework incorporates liquidity and capital metrics to support timely

execution of the Resolution Strategy. The RLEN and RCEN estimates are incorporated into the Support

Trigger to help ensure that MS Parent sends its remaining contributable assets to the Funding IHC and

files for bankruptcy in a timely manner. These triggers are dynamically calibrated and result in defined

actions and escalation processes upon their occurrence.

The Firm’s Support Methodology ensures that Material Entities are always provided with the required

resources to execute the Resolution Strategy. Any incremental equity need is assumed to first be

provided through the conversion of existing ILAC. If an equity need remains post conversion, additional

equity would be provided.

The Firm also introduced additional liquidity and capital metrics in connection with the establishment and

operationalization of the Funding IHC as a funding vehicle.

4.2.7. Derivatives and Trading Activities

In response to the Final Guidance and as part of its continued investment in its derivatives and trading

wind-down capabilities, the Firm has developed an enhanced set of derivatives and trading capabilities.

The main capabilities associated with Derivatives and Trading capabilities are the following:

• Booking Practices

• Inter-Affiliate Risk Monitoring and Controls

• Portfolio Segmentation and Forecasting

• PB Customer Account Transfers

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• Derivatives Stabilization and De-Risking Strategy

The Firm’s ISG MOE Resolution Strategy assumes a Stabilization Period of six weeks immediately

following MS Parent’s Bankruptcy, where PB accounts would be transferred and no derivatives positions

are wound down. Following the Stabilization Period, the Firm executes its wind-down strategy over a one

year horizon.

Based on its analysis, assumptions and associated Resolution Financial Model outputs, the Firm

demonstrates that it has the financial capacity to exit substantially all of its ISG MOE positions within the

Resolution Period and that, based on facts and circumstances of an actual event, it could increase or

decrease the speed at which it chooses to exit positions while still maintaining compliance with applicable

ISG MOE regulatory capital minimums, holding sufficient liquidity to continue to perform obligations as

they come due and meeting heightened requirements for maintaining access to its top FMUs and Agent

Banks that are necessary for the execution of the ISG Solvent Wind Down.

4.2.7.1. Booking Practices

Overview of Derivative Trading Booking Practices

The Firm engages in external and inter-affiliate derivatives transactions within a variety of underlying

asset classes to support its external client needs and activities and internal risk management processes.

Those activities are executed in accordance with the Firm’s booking principles and associated policies as

outlined in the “Derivatives Booking Framework.” The Derivatives Booking Framework, which is

described in further detail below, articulates the principles, rationales and approach to the Firm’s booking

practices.

The vast majority of the Firm’s derivative activities are transacted within the ISG segment through its ISG

MOEs. Certain legal entities within the ISG BU maintain the memberships with execution venues and

clearing houses required to execute the vast majority of the Firm’s trades. Within ISG, trading activities

are conducted by the Fixed Income (“FID”) and Institutional Equities (“IED”) divisions. Below is a

description of each of the functions and the trading activity they conduct:

• FID includes the Firm’s sales and trading business as related to fixed income, foreign exchange

(“FX”) and commodities BUs, and mostly engages in derivatives transactions related to interest

rate, credit, foreign exchange and commodities products; and

• IED includes the Firm’s sales and trading business as related to equities, and mostly engages in

derivatives transactions related to equity products.

In addition to the ISG BUs, Corporate Treasury and Bank Resource Management (“BRM”) also conduct

trading activities. With multiple derivatives products being traded by a variety of ISG BUs, it is important

to maintain a clear strategy and model with which to define and control the Firm’s derivatives booking

practices.

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Derivatives Booking Framework and Principles

In accordance with the 2019 Guidance, the Firm has a Derivatives Booking Framework which consists of

multiple components, including booking principles, governance and oversight, booking model design, risk

management and controls and periodic review and optimization. This Derivatives Booking Framework is

applicable to all derivative trades executed, cleared or settled through ISG, accounting for the vast

majority of derivatives trades across the Firm. Together, the Derivatives Booking Framework components

articulate the Firm’s approach to managing its booking practices.

The Firm’s Derivatives Booking Framework is guided by five principles, known as the “Derivatives

Booking Principles.” The Derivatives Booking Principles, which have been approved by the Booking

Model Committee, dictate that the Firm’s booking practices should:

1. Minimize the number of client facing entities;

2. Centralize market risk regionally or globally to minimize the number of entities for efficient risk

management;

3. Rationalize the number of inter-affiliate transactions;

4. Align risk and return at the entity level; and

5. Maintain strong booking model governance, including adequate controls, infrastructure, and

management information.

The Derivatives Booking Principles focus on minimizing complexity and maximizing risk management

efficiency and meeting the Firm’s and clients’ regulatory and statutory requirements. Although tensions

may exist between each of the Derivatives Booking Principles, booking practices must strike a balance

between them.

Governance and Oversight

The Firm utilizes a network of Firmwide, segment, regional and legal entity-specific boards, committees

and personnel to provide the appropriate level of governance within the monitoring and management of

booking practices. The Booking Model Committee, which was recently re-vamped and formalized with

new members and responsibilities, has primary responsibility for overseeing booking practices. The

Booking Model Committee has a direct reporting line to ISG ALCO and is expected to regularly report

to it. Exhibit 4-3 below provides a high-level view of the governance bodies responsible for overseeing

booking practices and the corresponding booking lines.

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Exhibit 4-3. Summary of Booking Practice Governance Structure

In addition to the governance bodies identified above, regional and legal entity governance bodies

support and oversee applicable booking practice related activity. Furthermore, functional areas support

multiple layers of risk management processes, which range from first and second lines of risk oversight

defense carried out by BU risk management and independent risk management departments for market,

credit, liquidity and operational risk, respectively, to functional support across matters related to Treasury,

Finance, Legal, Compliance and Operations.

Key Changes to Derivatives Booking Framework Since 2017 Plan

While many of the components of the Firm’s Derivatives Booking Framework remain consistent with the

2017 Plan, enhancements have been made as part of the Firm’s Derivatives Booking Framework

enhancement project.

Since the 2017 Plan, the Firm has made enhancements to the governance and internal controls related to

its booking practices. The most integral of these governance changes is the formalization of the Booking

Model Committee with clearly documented roles and responsibilities. The Booking Model Committee is

the Firm governance body primarily responsible for overseeing booking practices.

Additionally, the Firm has developed, approved and is in the process of fully implementing a Global ISG

Booking Model Policy. The Global ISG Booking Model Policy centralizes and formalizes the Firm’s

booking model principles, enhances the practices for managing booking models including the process for

approving new booking models, and outlines the booking model inventory and escalation process.

4.2.7.2. Inter-Affiliate Risk Monitoring and Controls

The Firm has the capability to assess how inter-affiliate risks can be affected in resolution, including the

potential disruption in the transfers of risks between affiliate entities.

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The Firm has an Inter-Affiliate Market Risk Framework and performs the market risk analysis outlined in

the framework to understand and manage the interconnectivity of the Firm’s ISG MOEs with affiliates. In

2019, the Firm expanded its market risk monitoring capabilities to address the impact of terminating

specific counterparty or affiliate trades for each ISG MOE and re-hedging the risk using cleared and/or

listed products. To monitor, measure and manage inter-affiliate risk, the Inter-Affiliate Market Risk

Framework analyzes potential hedge effectiveness through the suppression of risk sensitivities.

As part of the effort to develop the Inter-Affiliate Market Risk Framework, the Firm defined guiding

principles to ensure that the framework adequately informs the inter-affiliate market risk analysis and

ensure the framework:

• Is transparent, explainable, and attributable;

• Fosters decision making and informs management on current levels of risk and potential impacts

on resolvability;

• Focuses on actionable risk metrics, i.e., risk metrics that the front office uses regularly; and

• Aligns with existing related frameworks.

The Firm’s Inter-Affiliate Market Risk Framework provides risk managers with an understanding of the

type of inter-affiliate trading activity, particularly as it relates to uncleared, bilateral trades, in which each

ISG MOE participates.

In the Inter-Affiliate Market Risk Framework, the ability to hedge certain positions is consistent with the

analysis and hedging approach modeled in the derivatives wind down.

The Firm’s ISG MOEs maintain adequate capabilities for measuring, monitoring, and reporting the market

risk exposures resulting from the termination of a specific counterparty or a set of counterparties under

normal and conditional operating conditions. The Inter-Affiliate Market Risk Framework focuses on the

metrics the front office uses to manage risk, employs assumptions consistent with the Firm’s wind down

model, and leverages the Firm’s and the legal entities’ existing risk infrastructure and governance to

facilitate timely review and discussion of inter-affiliate risk and its impact on resolvability.

The Firm expects that the Inter-Affiliate Market Risk Framework, including the overall approach and

operating model for reporting, review and analysis, will be refined in the near- to medium-term as required

based on the ongoing review and feedback.

4.2.7.3. Portfolio Segmentation and Forecasting

The Firm has the following capabilities related to Portfolio Segmentation and Forecasting:

• Portfolio Segmentation Capabilities: The Firm has developed a new Derivatives Segmentation

and Forecasting capability that allows it to segment its Firmwide OTC derivatives portfolio at the

position level using a wide variety of trade-level characteristics. The foundation for the Firm’s

Derivatives Segmentation and Forecasting capability is a new position-level dataset that covers

all derivatives positions held by the Firm and that aggregates and centralizes a large number of

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position-level attributes across both Finance and Risk source systems. The Firm’s approach to

produce segmentation consists of two primary elements: (i) a well-structured process to collect

assumptions from front-office professionals responsible for originating and managing derivatives

transactions in BAU; and (ii) a robust review and challenge process to validate those assumptions

with a cross-functional group spanning the front-office, Finance, Treasury, and Risk;

• Contractual Maturity Profile and Firmwide Derivatives Portfolios: Contractual maturity

information is available at the position-level within the Derivatives Segmentation and Forecasting

capability, allowing the Firm to analyze the run-off profile of its Firmwide derivatives portfolio. The

Firm has the capability to analyze the full contractual maturity profile of its Firmwide derivatives

portfolio on both an external and inter-affiliate basis;

• Segmentation Analysis of Firmwide Derivatives Portfolio: The Firm has segmented its

Firmwide OTC derivatives portfolio at the position-level based on how it would package, sell or

otherwise wind down that portfolio under its Resolution Strategy. The new position-level

derivatives dataset provides a wide range of potential attributes that can be used for

segmentation purposes. The Derivatives Segmentation and Forecasting capability maintains all

of the granular information necessary to generate alternate segmentations and provides the

flexibility to re-parameterize or otherwise adjust the segmentation criteria, should the need arise;

• Ease of Exit Analysis: The Firm’s newly developed Derivatives Segmentation and Forecasting

capability incorporates a method and generalized capability to categorize all Firmwide derivatives

positions in terms of their ease of exit based on a set of well-defined and consistently applied

segmentation criteria. The ease of exit framework can be applied to all Firmwide derivatives

positions within the newly developed Derivatives Segmentation and Forecasting capability;

• Application of Exit Cost Methodology: To develop estimates of RCEN and RLEN, the Firm

maintains a suite of forecasting analytics used to model the financial impacts of winding down its

derivatives and trading activities. These analytics are embedded in the Derivatives Segmentation

and Forecasting capability used to segment the derivatives portfolio and rely on the same

position-level dataset, and therefore can be applied to the Firmwide derivatives portfolio. The

Derivatives Segmentation and Forecasting capability is a systems-based application and provides

the Firm with flexibility to analyze alternative strategies and scenarios, thus maximizing optionality

to respond to the specific facts and circumstances of a resolution event;

• Analysis of Operational Capacity: The Firm has the capabilities to forecast the incremental

operational needs and expenses related to execution of its Resolution Strategy, including its ISG

Solvent Wind Down. These capabilities include the Firm’s overall continuity strategy and analysis

of operational capacity, non-compensation expense forecasting and compensation expense

forecasting. The Firm also has the ability to manage potential logistical and operational

challenges related to novating derivatives portfolios during resolution, including the design and

adjustment of novation packages; and

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• Sensitivity Analysis: The Firm’s estimates of derivatives-related costs and liquidity flows under

its Resolution Strategy reflect a well-structured process, with strong controls and formal reviews,

challenges, and approvals. As part of this process, the Firm identifies and assesses the key

assumptions and uncertainties associated with the models that underlie its financial forecasts,

including those that could have a material impact on consolidated capital and liquidity estimates.

4.2.7.4. Prime Brokerage Customer Account Transfers

The Firm has a strategy for executing the transfer of customer assets to support its Resolution Strategy.

In particular, the strategy supports the ISG Solvent Wind Down with respect to the wind down of ISG’s PB

business.

The Firm identified two overarching drivers that affect the exit timing of PB clients:

• Client characteristics independent of relationship with the Firm, which can be further broken down

into two components:

o Client size and risk characteristics; and

o Client leverage and liquidity; and

• PB client credit exposure to the Firm – PB clients with more exposure to the Firm would be

incentivized to leave sooner.

As required by the 2019 Guidance, the Firm has segmented all of its PB clients to determine their likely

exit timing in a resolution scenario. This segmentation is based on five Agency-suggested and five

additional Firm-identified attributes. Each attribute is assigned a threshold, which signifies the level at

which a given client could become easier to transfer as a result of its portfolio characteristics. Thresholds

are determined based on a combination of subject matter expertise, internal risk management

considerations, and the distribution of PB’s liquidity risk profile.

The strategy demonstrates that existing processes and resources can transfer customer assets in a

timely manner in the event of a resolution scenario. The transfer plans leverage key characteristics of

each business including, specifically, that a majority of PB customers have multiple brokerage

relationships. This strategy informs the transfer of PB customer accounts of MSCO and MSIP.

In addition to detailing the processes to transfer assets, this strategy documents the potential impact to

transfers in the event that recovery of rehypothecated customer collateral is not possible.

4.2.7.5. Derivatives Stabilization and De-Risking Strategy

Overview of Derivatives Stabilization and De-Risking Strategy:

The Firm’s derivatives stabilization and de-risking strategy has been incorporated into its broader

Resolution Strategy and outlines the Firm’s approach to wind down its derivatives and trading portfolios in

an active manner during Resolution. The objective of this strategy is a rapid and orderly unwind of the

Firm’s ISG MOEs in a manner that maximizes value, minimizes cost and is least disruptive to the broader

financial system and real economy. This strategy covers the entirety of the Firmwide derivatives portfolio,

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but focuses on those derivatives booked on its ISG MOEs, which collectively represent greater than 99%

of its derivatives exposure by notional. The Resolution Timeline and sequence of events are summarized

in Exhibit 4-4 below.

Exhibit 4-4. Resolution Timeline and Sequence of Events

Throughout the resolution timeline, the Firm assumes market conditions consistent with a severely

adverse stress environment. The Firm also incorporates in its 2019 Plan the potential losses that could

arise due to basis risk created by hedging with only listed and cleared instruments in Resolution.

Assumptions and Constraints

In developing its Resolution Strategy, the Firm makes assumptions with respect to the timeline and

sequence of events that would put it on the path to resolution, as well as the conditions under which

resolution would occur. Consistent with regulatory guidance, the Firm applies the following assumptions

and constraints:

• Credit ratings: At the start of the Runway Period, the Firm assumes a universal 3-notch

downgrade of all rated entities. At the PNV, the Firm further assumes that all ISG MOEs are

further downgraded to non-investment grade, and that they fail to reestablish investment grade

status for the duration of the Resolution Period;

• Market access: The Firm assumes that it would not be able to enter into new bilateral OTC

derivatives during the Runway Period or the Resolution Period, and as a result hedging is limited

to listed and centrally cleared instruments. Consistent with this assumption, the Firm also

estimates potential losses due to basis and other risks that cannot be hedged using available

instruments;

Unwind of derivatives positions

• Inter-affiliate derivatives are torn-up

Runway Period Resolution Period

• Residual portfolio remains at end of wind down

End of wind down

Post-Resolution Period

Trigger event

• 3 notch downgrade of rated entities

• Derivatives terminations

• Initial hedge and Termination hedge

• Short-dated derivatives contractually mature

• Non-terminating, non-maturing OTC derivatives are novated

• Exchange traded derivatives are sold

Point of non-viability

• Downgrade of material derivatives entities to non-IG

• Derivatives terminations

• Termination hedge

• Additional hedging performed for Ongoing Rebalancing

• Stress results in Risk Based Losses

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• Early exits: The Firm’s Resolution Plan incorporates the termination of derivatives contracts with

additional termination events in response to the downgrade assumptions cited above as well as

the direct default of contracts facing MS Parent and non-MOEs. In identifying those contracts

that terminate, the Firm assumes: (i) that all counterparties with the right to terminate would

exercise that right consistent with the requirements of the 2019 Guidance; and (ii) that certain

termination rights are stayed upon the bankruptcy filing of MS Parent consistent with the ISDA

Protocols; and

• Resolution timeline: The Firm’s Plan reflects a one-year Resolution Period, during which it

would wind down the vast majority of its derivatives and trading positions. The timeline was

evaluated in light of the Firm’s resolution objective of winding down in a rapid and orderly manner

that maximizes value, minimizes cost and is least disruptive to the broader financial system and

real economy. The Firm believes the timeline is reasonable given its consideration of

counterparty behavior, portfolio liquidity, financial capacity, operational capacity, residual portfolio

and alternative scenarios.

Analysis of the Derivatives Stabilization and De-Risking Strategy

The Firm’s analysis of its derivatives strategy takes into account the Resolution Strategy timeline and

sequence of events, as well as the assumptions and constraints described above, and includes:

• A derivatives wind down strategy (i.e., a method for timely segmenting, packaging, and selling

its derivatives positions), taking into account the starting profile of its derivatives portfolios and the

profile and function of derivatives entities in resolution. This analysis relies on the Firm’s newly

developed Derivatives Segmentation and Forecasting capability and related assumptions,

described above, including its assessment of ease of exit for OTC derivatives positions;

• A re-hedging (de-risking) strategy that specifies the risk sensitivity factors the Firm would seek

to hedge in resolution and the instruments it would use, subject to the prescribed market access

constraint;

• Forecasts of financial resources needed to execute its strategies, including the cost of

novating OTC derivatives, the cost of entering into new derivatives hedges, and the losses the

Firm could incur as a result of only hedging with listed and centrally cleared instruments. These

forecasts also include estimates of the liquidity and funding impacts of the wind down, and are

incorporated into the Firm’s RCEN and RLEN estimates for its Resolution Strategy;

• An assessment of the operational costs and capacity to execute its strategies that

describes the process, resources and costs associated with the execution of the ISG Solvent

Wind Down, both for derivatives novations and PB customer account transfers. This assessment

is integrated with the Firm’s overall operational continuity strategy and related playbooks (e.g.,

Employee Retention Playbooks) and informed by the Firm’s experience as a buyer and seller of

novation packages and observed counterparty behavior in past stress events. The operational

costs to execute the wind-down are also incorporated into the Firm’s RCEN and RLEN estimates

for its Resolution Strategy; and

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• Identification and evaluation of the residual portfolio that could remain at the end of the wind

down, including its size, composition, complexity and potential counterparties. The Firm has

identified its potential residual exposure as being less than 0.03% of its starting third-party OTC

derivatives exposure.

Residual Derivatives Portfolio

Under its Resolution Strategy, the Firm expects to be able to dispose of greater than 99% of the OTC

derivatives booked on its ISG MOEs by the end of the Resolution Period through a combination of

terminations, contractual maturities, third-party novations, and inter-affiliate tear-ups. However, any

derivatives positions that remain at the end of the Resolution Period would form a residual portfolio that

would be held until contractual maturity if the Firm is unable to exit these positions after the Resolution

Period. The Firm has identified these potential residual positions using the ease of exit framework as

transactions that are (i) very hard to exit; and (ii) which do not contractually terminate prior to the end of

the 1-year Resolution Period. The Firm has assessed the risk profile of this potential residual derivatives

portfolio across the following three dimensions, as summarized below:

• Size: The Firm assessed the size of its potential residual portfolio under the Resolution Strategy

relative to the size of its starting derivatives portfolio and relative to the size of the derivatives

portfolios of other U.S. dealers. For the starting point comparison, the Firm compared the

notional balance of its potential Residual portfolio against the derivatives notional balance of its

ISG MOEs as of December 31, 2018. For the peer analysis, the Firm compared the notional

balance of its residual portfolio against the aggregate derivatives notional held by other U.S. bank

holding companies as of December 31, 2018. Both analyses demonstrate that the potential

residual derivatives portfolio is immaterial from a size perspective, representing less than 1% of

the Firm’s starting external derivatives exposure and an even smaller fraction of the broader

markets.

• Composition and complexity: The Firm assessed the composition and complexity of its

potential residual portfolio under the Resolution Strategy by analyzing the underlying positions

using transaction-level attributes such as legal entity, product / desk, currency, maturity,

counterparty, and level of collateralization. This analysis demonstrates that while the residual

consists of illiquid trades and trades with certain types of counterparties, the portfolio is relatively

simple as it consists of a limited set of positions with few counterparties and booking entities.

• Potential counterparties: The Firm conducted an assessment of the counterparty composition

of its potential residual derivatives portfolio under the Resolution Strategy. The assessment

looked at the nature and concentration of counterparties to the Firm’s residual portfolio and also

the extent to which residual portfolio positions are collateralized.

The three analyses described above strongly indicate that the Firm’s potential residual derivatives

portfolio under the Resolution Strategy does not pose a systemic risk to the stability of the U.S. or global

financial markets. Given that the residual portfolio is immaterial in size, its composition is simple, and its

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counterparty concentration is limited, non-performance on these contracts is not likely to have a materially

adverse impact on markets or on the Firm’s counterparties.

4.2.7.6. Communications Strategies

Consistency and clarity of communications is important to the execution of the Resolution Strategy,

particularly with respect to the Firm’s Derivatives and Trading Activities. The Financial Stress

Communications Playbook sets forth the Firm’s plans to manage and execute communications with key

stakeholders in periods of financial stress.

Communications Strategy

Fundamental to the Firm’s ability to manage itself during a period of financial stress is its ability to

communicate with its key internal and external stakeholders, including clients, employees and regulators,

in a timely and globally coordinated manner. As financial stress events may vary in terms of severity and

speed, it is important that the Firm have a well-developed, well-understood communications protocol and

clear assignment of responsibilities that can be promptly activated to allow the Firm to achieve its

strategic objective of having its key stakeholders take (or refrain from taking) certain actions.

The Firm’s global communications strategy is described in the Financial Stress Communications

Playbook and is grounded in the principle that the Firm’s BAU processes should be “crisis-ready,”

adaptable to the particular facts and circumstances at the time and able to be executed in a wide range of

scenarios in a timely manner.

Central to the global communications strategy is “BRM Command,” a communications protocol first

developed in response to the 2008 financial crisis, which provides globally coordinated communications

and governs the Firm’s preparedness, organization, escalation and response to events that could

potentially affect the Firm’s financial position. BRM Command is designed to ensure control over

information inflows and outflows, identify and vet potential risks in the current environment, generate

customized dashboard reporting of relevant metrics and implement action plans to respond to

macro/market and Firm-specific events, including any related counterparty issues.

The Firm’s global communications strategy has been successfully implemented in numerous stress

events since 2008 (including crises related to the U.S. debt ceiling, Greece’s potential debt default and

exit from the Eurozone and the UK’s exit from the Eurozone), demonstrating the credibility of the strategy.

4.3. Operational Continuity and Capabilities

Building on efforts completed prior to the 2017 Plan, the Firm continued to upgrade its Operational

Continuity and Capabilities so that the Material Entities would have access to the critical personnel,

systems, applications, facilities, vendors and other non-financial resources needed to execute the

Resolution Strategy and the ability to produce the data and information and perform the processes

necessary to execute the Resolution Strategy.

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The below sections describe the Firm’s Operational capabilities and strategy for maintaining operational

continuity and map to each of the areas identified under the Operational vulnerability in the 2019

Guidance.

4.3.1. Payment, Clearing and Settlement Activities

4.3.1.1. Overview of PCS Activities

The Firm conducts PCS activities to support its business operations. As part of these activities, the Firm

utilizes FMUs and agent banks (together, “PCS providers”) to facilitate the clearing and settlement of

cash and securities transactions in various markets globally. The Firm also provides PCS services to

clients in certain limited instances, but does not perform utility-like agent bank services (e.g., payment

clearing, settlement agent, etc.) for other large financial intermediaries.

In most major markets, one or more Firm entities have memberships with local FMUs that allow the Firm

direct access to clearing and settlement infrastructure in the region. In markets where the Firm does not

have direct access, Firm entities utilize third-party agent banks to facilitate PCS activities and provide

indirect access to local infrastructure. In addition, the Firm also has in place certain inter-affiliate

arrangements whereby a Firm entity with direct access to an FMU or agent bank may provide PCS

services to another Firm entity that does not have direct access for the relevant market.

The Firm maintains a mapping of the PCS services to the Material Entities, Core Business Lines and

Critical Functions that use and/or provide them, as well as to the key FMUs and agent banks the Firm

utilizes and the key PCS clients it serves.

4.3.1.2. Overview of PCS Framework

A loss of access to the key PCS providers that the Firm utilizes, or to key financial and operational

resources within the Firm, could disrupt the continuity of the Firm’s PCS activities and impede the

execution of the Resolution Strategy.

To address this potential risk, the Firm has a PCS Framework that comprises the Firm’s capabilities for

continued access to PCS services essential to an orderly resolution. Key capabilities incorporated within

the PCS Framework include:

• Identification of PCS clients,23 FMUs and agent banks as key from the Firm’s perspective;

• Mapping of Material Entities, Critical Functions, Core Business Lines and key PCS clients to both

key FMUs and key agent banks;

• A PCS continuity strategy that describes how the Firm would maintain access to its current

network of FMUs and agent banks, leveraging contingency arrangements where appropriate, as

well as key financial and operational resources within the Firm;

23 “PCS clients” include individuals or entities, including affiliates of the Firm, to whom the Firm provides PCS services and any related credit or liquidity offered in connection with those services.

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• A detailed analysis of financial resources that each MOE may need during the Runway Period

and Resolution Period to meet potential heightened requirements imposed by PCS providers,

including increased collateral and margin requirements and reduction in access to secured and

unsecured credit;

• A communications protocol (“FMU Command”) that supports the Firm’s PCS continuity strategy;

and

• Playbooks for the Firm’s relationships with key FMUs and agent banks that (i) reflect the Firm’s

roles as a user and/or provider of PCS services, and (ii) outline how the Firm would maintain

access to the provider in a manner that would support an orderly resolution.

The PCS Framework addresses both direct and indirect relationships with PCS providers as well as the

Firm’s role as both a user and provider of PCS services.

4.3.1.3. Enhancements to PCS Capabilities

The Firm continually looks for opportunities to enhance its PCS capabilities, both with respect to BAU

activities as well as contingency planning. The Firm also reviews and responds to regulatory guidance

and feedback as it is published, and seeks to maintain capabilities that are consistent with the

expectations of its regulators globally and in line with peer practices.

The Firm has implemented the following key enhancements to its PCS capabilities, many of which are

directly in response to the Final Guidance published by the Agencies:

• Formalization of the Firm’s FMU and agent bank access strategy and related capabilities into the

PCS Framework;

• Development and implementation of an approach to identify PCS clients as key from the Firm’s

perspective and to map such key PCS clients to key FMUs and key agent banks;

• Definition of discrete PCS services used and/or provided by the Firm and mapping of such

services to Material Entities, Critical Functions, Core Business Lines, key FMUs, key agent banks

and key PCS clients;

• Development of a PCS Data Repository to house and centralize key dynamic data supporting the

Firm’s PCS Framework including projections of potential liquidity needs related to PCS activities,

contact information for key internal and external stakeholders, mapping of key PCS clients to key

FMUs and key agent banks, and current availability of intraday credit from PCS providers;

• Additional description of the Firm’s role as a provider of PCS services into the FMU and Agent

Bank Access Playbooks where relevant;

• Incorporation of additional analysis of potential financial and operational impacts to key PCS

clients due to adverse actions that may be taken by a key FMU or a key agent bank and

contingency actions that may be taken by the Firm;

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• Enhanced description of how the Firm will communicate to key PCS clients the potential impacts

of implementation of potential contingency arrangements or alternatives; and

• Enhancement of the Firm’s Key PCS Provider Library to incorporate additional data points for key

FMUs and agent banks and expanded mapping of PCS services used and/or provided.

Through the PCS Framework and component PCS capabilities, the Firm addresses applicable regulatory

guidance and expectations with respect to maintaining continuity of PCS services.

4.3.1.4. PCS Continuity Strategy

PCS providers have the discretion to increase, modify or supplement their BAU requirements in response

to Firm financial stress, which would place additional demands on Firm resources. The Firm’s PCS

continuity strategy is to maintain access to key PCS providers by meeting financial, operational and

communications and reporting requirements that may be imposed by such providers.

The Firm has engaged in internal and industry efforts to further understand the potential heightened

requirements that could be imposed by PCS providers in stress or resolution and the likely reactions of

PCS providers to the Resolution Strategy. These efforts have included detailed reviews of PCS provider

rulebooks and contracts, engagement directly with PCS providers and consideration of the Firm’s

historical experience. Through these efforts, the Firm has either actively participated in or obtained the

output of a variety of discussions about resolution planning with the PCS providers that it utilizes. These

discussions have helped to understand the likely responses of FMUs and agent banks to the resolution of

a participant firm and to set expectations around the actions market participants would need to take to

maintain access to PCS providers in such a scenario.

In addition to industry efforts, the Firm also conducts its own bilateral discussions with PCS providers to

review its PCS continuity strategy, discuss heightened requirements and consider potential contingency

options. These discussions have informed the Firm's understanding of the potential heightened

requirements that could be imposed and validated the Firm's FMU and agent bank access strategy. The

discussions have also supported the Firm's view that contingency strategies such as switching to an

alternative provider or obtaining indirect access through a third-party would not be feasible in many

cases, emphasizing the importance of maintaining access to existing FMU and agent bank relationships.

4.3.1.5. FMU and Agent Bank Access Playbooks

The Firm has FMU and Agent Bank Access Playbooks for each of its key PCS providers, which include

an assessment of potential heightened requirements and the Firm’s capacity to respond to those

requirements.

4.3.1.6. Financial Capacity

The Firm considers the potential financial heightened requirements that may be imposed by PCS

providers, which are:

• Increased margin for central counterparties (“CCPs”);

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• Pre-funding and/or additional collateral requirements to support reduced access to secured and

unsecured intra-day credit from securities agents and central securities depositories (“CSDs”);

and

• Additional liquidity needs resulting from reduced access to In/Out swaps with other CLS FX

settlement members.

The Firm projects liquidity that may be required by MOEs to meet such heightened requirements during

periods of stress and in resolution, and incorporates these projections into the Resolution Financial

Model. The Firm continues to reassess these methodologies and enhance its projection approaches

where possible, including to account for any changes in the Firm's risk profile on an ongoing basis.

A summary of the Firm’s current projections of liquidity that may be needed across Material Entities to

meet potential heightened requirements from PCS providers during periods of stress and in resolution is

included within the PCS Data Repository. These projected liquidity needs are incorporated into various

components of the Resolution Financial Model based on the anticipated timing of the imposition of the

relevant heightened requirement and the nature of the liquidity need.

4.3.1.7. Communications and Reporting

FMU Command is the Firm’s global protocol for maintaining open communications with PCS providers in

times of stress. Once activated, FMU Command’s goal would be to preserve FMU and agent bank

access, which would rely on maintenance of robust communication with other Firm functions, including in

particular BRM Command and “Firmwide Shared Services Command,” to identify, assess, escalate and

mitigate potential risks. FMU Command would coordinate closely with BRM Command to provide the

detail it needs to carry out its duties as they relate to FMU access.

In BAU, PCS provider relationships are the responsibility of key Managing Directors in Operations and

BRM with deep knowledge of the Firm’s PCS providers. These senior executives manage teams that

interact with PCS providers on a day-to-day basis and maintain senior-level relationships with the

providers. These individuals comprise the membership of the “PCS Steering Committee,” and if FMU

Command is activated during periods of stress or resolution, would become the core members of FMU

Command.

Following activation of FMU Command, the members of FMU Command would prepare to alert FMUs

and agent banks of the current state of the Firm, if not already done. The FMU Command members

would then initiate the efforts needed to meet any heightened requirements implemented by the FMUs or

agent banks, including an increase in communication and reporting requirements. FMU Command would

coordinate with BRM Command, providing the relevant information necessary for communication with

internal and other external stakeholders. BRM Command is responsible for coordinating communication

with clients, counterparties, regulators, vendors and other key internal and external stakeholders.

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4.3.2. Managing, Identifying and Valuing Collateral

Role of Collateral Management at the Firm

Collateral management is used by the Firm to manage the counterparty credit risk associated with its

sales and trading, hedging and retail activities. Margin and collateral transactions are executed with

CCPs, clearing agencies, exchanges, banks, securities firms and other financial counterparties, including

affiliates. During a period of stress, collateral management activity may increase as counterparties call for

additional collateral and the value of certain types of collateral becomes more volatile. The Firm’s

Resolution Financial Model, however, demonstrates that sufficient liquidity would be maintained under

severely adverse conditions, such that any potential disturbances in the regular flow of collateral

management activity would not impair the Firm’s dealings with its counterparties in a substantial way.

The Firm’s financial capacity combined with its robust collateral management practices, as described

further below, would enable the Firm to properly value, manage, return and source collateral as

necessary without resorting to collateral fire sales or otherwise transmitting liquidity stress to

counterparties.

Collateral Management Capabilities and Processes

The Firm has assessed its ability to produce necessary collateral management-related information

contained in the 2019 Guidance through the AREA process.

The Firm has robust capabilities in place to manage, identify and value collateral received from and

posted to external parties and affiliates on a Material Entity basis, including:

• Defined processes and procedures to identify and review, on at least a quarterly basis, legal and

operational differences and potential challenges in managing collateral within specific

jurisdictions, agreement types, counterparty types, collateral forms, or other distinguishing

characteristics;

• Maintaining a collateral management policy that outlines how the Firm as a whole approaches

collateral and serves as a single source for governance with underlying divisional collateral

management policies for each Core Business Line;

• Systems and reporting capabilities to identify efficiently the location of, and legal rights to, all

pieces of collateral pledged to, pledged by, or held in custody by any Material Entity, including:

(i) the legal entity and geographic jurisdiction where counterparty collateral is held by end of day,

(ii) CUSIP and asset class information on collateral pledged to CCPs, and (iii) collateral pledged

and received across branches;

• Standards in place to document all netting and re-hypothecation arrangements as well as

produce risk measurements for cross-entity and cross-contract netting;

• Process to monitor counterparty credit risk exposure between affiliates and track/manage

collateral requirements as part of the Firm’s strategy for optimizing collateral allocations;

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• Process to consider terms, such as triggers or cross defaults, that may be impacted by a change

in market conditions as well other key collateral-related terms that may not be impacted in an

adverse economic environment, and processes for identifying, capturing, tracking and reporting

on these key terms;

• Defined procedures in place to review, on a quarterly basis, ISDA and Credit Support Annex

agreements for triggers that may be breached as a result of changes in market conditions; and

• As part of its Liquidity Stress testing, a process for forecasting changes in collateral requirements

and cash and non-cash collateral flows under a variety of stress scenarios, at least on a quarterly

basis.

Collectively, these processes serve as the framework and strategic plan for continuing collateral

management processes in a resolution scenario. The Firm has embedded these capabilities into regular

business practices, thereby enhancing the Firm’s overall preparedness and readiness to respond to crisis

situations and contributing to the ongoing resolvability of the Firm. These capabilities have also been

assessed through the AREA process.

Each business has an appropriately designed collateral management process, supported by the

Operations function in coordination with BRM, Credit Risk and front-office BUs.

Maintaining Resolvability

Reflecting the Firm’s commitment to sound and effective resolution planning, the Firm maintains its

capabilities related to managing, identifying and valuing collateral. The Firm has in place practices and

reporting capabilities and project governance mechanisms to monitor the timely completion of any

identified enhancements, where and as needed.

Several key collateral management capabilities are embedded into the Firm’s regular business practices,

including:

• Updated, global collateral management policies;

• Expanded collateral-related assumptions as part of the Firm’s regular liquidity stress testing,

including enhancing the Firm’s existing cash flow framework to incorporate all inter-affiliate

contingencies with material liquidity flows and maintaining a stress testing scenario which

consists of assumptions for ring-fencing for all inter-affiliate flows;

• Increased frequency and efficiency of conducting periodic reviews of key terms and triggers; and

• Maintained reporting and analytic platform that combines the structured contract data points with

exposure data, counterparty data, legal entity data and other key data points to deliver insightful

analysis derived from this combined data set.

4.3.3. Management Information Systems

The execution of the Firm’s Resolution Strategy is grounded in the ability to leverage BAU MIS

capabilities. The Firm’s MIS include technology systems, applications and automated reporting tools

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necessary to manage Core Business Lines and Critical Functions in BAU. In BAU, the Firm generates

data produced by MIS on a regular basis for use by senior and other management to monitor the

activities of the Firm. MIS includes financial and risk data that would be required to execute the Firm’s

Resolution Strategy, including information that would underlie timely decision-making by key stakeholders

throughout the stress continuum.

The Firm has carefully considered the requirements for continued provision of MIS in periods of financial

stress and has taken measures to ensure appropriate MIS capabilities persist in resolution. Accordingly,

the Firm maintains its MIS reporting capabilities to readily produce data to support the Firm’s oversight

and decision-making capabilities and enable general monitoring of the Firm’s financial health, risks and

operations.

The functional components of the Firm’s resolution planning objectives include:

• Identifying and Evaluating MIS Capabilities: The Firm identifies and evaluates MIS capabilities

required to support resolution preparedness, including associated testing, through AREA.

• MIS Supporting Trigger and Escalation Framework: The Firm relies on MIS to support its

Trigger and Escalation Framework in order to monitor conditions throughout the stress

continuum, and support timely decision making.

• MIS Enabling Execution of Resolution Strategies: The Firm describes MIS in its playbooks

that are relied upon to execute enumerated actions.

• Providing Access to MIS to Regulators: The Firm has established procedures to provide

access to MIS to regulators.

4.3.4. Shared and Outsourced Services

The successful execution of the Firm’s Resolution Strategy requires continuity of critical shared and

outsourced services to the Material Entities notwithstanding MS Parent’s entry into resolution

proceedings. Accordingly, the Firm’s strategy is to maintain service continuity in a range of scenarios and

conditions. As part of this Shared and Outsourced Services strategy, the Firm has developed its

capabilities to ensure that critical services will continue in resolution through the implementation of a

global network of MSEs (“MSE Network”). A service is deemed critical in resolution if the Firm’s

Resolution Strategy could no longer be feasibly executed if the process were absent. The Firm

understands the critical services that are needed in recovery and resolution and has arrangements in

place to ensure there is continued access to these critical services. The Firm has enhanced the MSE

Network by operationalizing the Funding IHC to preserve funding flexibility and to allocate financial

resources as needed to Material Entities in resolution.

Under the MSE Network framework:

• Support Control Function (“SCF”) personnel are employed by MSEs;

• Systems, applications and infrastructure are under the direct control of MSEs;

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• Intellectual property is either legally owned by MSEs, or MSEs have a perpetual, fully paid up

license to intellectual property;

• “Critical Vendor” contracts reference resolution friendly terms; and

• Facilities are under the direct control of MSEs (whether owned or leased), including data

centers.24

To strengthen the continuity of services during resolution and recovery, the Firm has taken additional

measures to (i) contractually require MSEs to take actions consistent with the Firm’s strategy, (ii) make

the MSEs financially resilient through the use of the Funding IHC and other means and (iii) implementing

controls to monitor the MSE Network, including:

• Governance & Communication Framework: The Firm has a governance and communication

framework to coordinate operational continuity in recovery and resolution.

• MSE Service Company Principles: MSEs comply with a set of principles that limit their ability to

take risks and keep them independent from risks that occur in the Firm’s operating subsidiaries

(e.g., MOEs).

• Operational Mapping: The operational mapping is the process through which the Firm

understands its critical services, interconnectedness across systems, applications and

infrastructure and support service vendors. The process is underpinned by the Firm’s “Service

Taxonomy,”25 which is the common language for describing services across the Firm. The

Service Taxonomy is linked to the “Process Taxonomy,” the Firm’s method of describing its

functions. operational mapping is supported by the Strategic Warehouse of Operational

Relationship Data (“SWORD”), the Firm’s strategic technology platform for managing service

relationship data;

• Inter-Affiliate Task Order Framework: Services provided by MSEs are documented in legally

binding arm’s length inter-affiliate task orders (“IATOs”). These documents obligate the MSEs to

provide services to their customers in both BAU and resolution and prevent the MSEs from

terminating services in the event of a resolution. The schedule of services in these documents

references SWORD;

• MSE Financial Resilience: The Firm’s Positioning Framework ensures working capital is readily

available for MSEs to mitigate any unanticipated service payment delays or disruptions or

intraday needs. The Firm’s operational continuity strategy and associated SLAs ensure the

MOEs remain contractually obligated to pay for services from the MSEs throughout resolution.

The MOE RLEN and RCEN modeling accounts for these continued payments to the MSEs.

24 Subject to certain documented exceptions.

25 The Service Taxonomy is used across the Firm’s operational mapping data and inter-affiliate contractual framework. This allows the services provided to be tied to the payments made by affiliates, the contractual agreements governing those services, and transparency initiatives.

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• Access to Operational Assets: Under the Firm’s operational continuity model, operational

assets required to support the provision of critical services are held within the global MSE

Network. Playbooks are in place that describe how, for each operational asset under the control

of MSEs, access would be maintained and managed in resolution.

4.3.4.1. Operational Mapping

Operational mapping provides a detailed inventory of services, applications and vendors required by the

Firm’s Critical Functions, Core Business Lines and Material Entities, including which of those resources

are critical in resolution.

The operational mapping process articulates services in a common language, the Service Taxonomy that

has been adopted in legal documentation, cost allocations / invoicing and supplier risk management. The

Service Taxonomy is linked to the Process Taxonomy, the Firm’s method of describing its functions.

The operational mapping exercise is managed, governed and executed by SWORD. On an ongoing

basis, the data is subject to a verification governance process. Data is collected through co-ordination

with the business segments, verified and approved by business management, and subject to verification

and confirmation processes within SWORD. All Material Entities (MOEs and MSEs), as well as all Firm

entities with at least one employee, are included in this exercise.

The “Global Outsourcing and Sourcing Policy” includes the obligation of each business to identify and

maintain services that are of essential importance to the execution of the Firm’s Resolution Strategy

through the operational mapping process.

Exhibit 4-5 illustrates how operational mapping articulates the service relationship data between the

Firm’s divisions and legal entities. As a process, service or associated resource may not be critical for the

entire Resolution Period, operational mapping captures the time period (on a quarterly basis) during

which each process, service and associated resource is critical to the execution of the Resolution

Strategy.

Exhibit 4-5. Operational Mapping Service Relationship Example

SWORD is considered the Firm’s service catalogue. SWORD captures all services and business

processes globally, with those critical to the execution of the Resolution Strategies being flagged as

resolution critical. All processes, applications, third party vendors and affiliates have been identified in

support of critical services and are mapped in SWORD. Service relationships are substantiated through

linkages to the resources (vendors and technology) required to support them, contracts that govern them,

and payments (allocations) given in consideration of those services.

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The Firm defines critical services as those services provided through an inter-affiliate or by an unaffiliated

third-party (vendor) needed to: (i) facilitate the execution of critical business processes; or (ii) support the

general business activities of a group or function that is deemed to be performing critical business

processes. These determinations were made by each BU and SCF based on the Firm’s Resolution

Strategy.

In addition, groups identified the operational resources that are critical to execution of critical processes

and services. Criticality of these associated resources (such as technology and vendor supplied

services) was determined based on responses to technology application and vendor criticality qualifying

questions.

Filtering, visualization and reporting tools in SWORD allow information to be viewed by Critical Function,

BU and legal entity.

Certification of the operational mapping data currently takes place on an annual basis.

4.3.4.2. Inter-affiliate Contractual Service Provisions

The Firm’s IATO framework provides a contractual services provision which obligates MSEs to exercise

their capabilities to promote a safe and sound resolution. This IATO framework consists of task orders

entered into among the MSEs and between the MSEs and their customers (operating entities). During a

resolution scenario, IATOs will be managed in the same way as they are in BAU. SCFs will perform the

services documented in IATOs and be responsible for meeting required service standards. Oversight for

these services will be performed by the SCFs responsible for providing the services. BAU incident

reporting will be leveraged and provided to Firmwide Shared Services Command as well as individual

MSE and MOE boards where necessary.

The key features of the IATO framework are:

• Full coverage of all MSEs;

• Full coverage of all services for those entities;

• Meets the arm’s length standard;

• Is constructed on terms similar to those a third-party would expect in both form and substance

and thus can be used as the basis for TSAs with buyers of the Firm’s objects of sale;

• No resolution impairing provisions;

• Significant resolution-enhancing provisions, explicitly obligating the continuation of services in

resolution;

• Documentation of services in the language of the service taxonomy, allowing IATOs to be clearly

linked to operational mapping and remuneration for services;

• Integration with the SWORD repository;

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• Integration with the Firm’s existing processes for workforce strategy and supervisory

documentation;

• Sustainable BAU structure; and

• Storage in the Firm’s Inter-affiliate Agreement Repository.

4.3.4.3. Contract Repositories

The Global Resolution Planning Non-Qualified Financial Contract Policy (the “Non-QFC Policy”) states

that all contracts related to the receipt of inter-affiliate and third-party services, products or resources that

would be necessary for the business of a Material Entity to function during an orderly resolution must be

maintained within an approved contract repository. The supplements to the Non-QFC Policy, as listed in

the Non-QFC Policy, list the contract repositories in which such contracts are maintained.

4.3.4.4. Continuity of Critical Services (Third Party Vendors) to the Firm in Resolution

The Firm’s approach to continuity of critical outsourced services has involved taking measures to confirm

that Critical Vendors do not have the contractual right to terminate their relationships with the Firm in a

manner that jeopardizes the Firm’s orderly resolution. In addition, because vendors transact with MSEs

that are insulated from financial and business risk, the Firm’s approach to continuity of critical outsourced

services mitigates vendors’ incentive to cease performing under Critical Contracts for fear of non-payment

or failure of the service entities. The Firm’s framework is flexible and is resilient in the preferred SPOE

Resolution Strategy and also in a variety of alternative scenarios, including an SPOE resolution strategy

in which MS Parent’s equity in certain of its subsidiaries is transferred to a bridge company and MPOE

resolution scenarios in which Material Entities are forced into resolution.

The Firm has established BAU processes to (i) identify Critical Contracts with vendors; and (ii) confirm

that such Critical Contracts will facilitate continuity of services covered under the contracts in resolution in

accordance with the Firm’s standards (or remediate the same to comply with Firm standards).

4.3.4.5. MSE Financial Resilience

To facilitate the financial resilience of MSEs, the Firm manages and accounts for the risks associated with

BAU, recovery and resolution such as employee, Critical Vendor and lease costs, expense-revenue

mismatch, loss of revenue and restructuring and wind down costs. As described below, this is achieved

through a Positioning Framework, with liquidity segregated from other group liquid assets.

The Firm’s Resolution Financial Model calculates the financial capacity of each MSE to continue to

provide resolution-critical services throughout execution of the Resolution Strategy. The model projects

the financial position of each MSE on a daily basis throughout the period, demonstrating their ability to

remain a solvent going concern with adequate liquidity to continue to function. If the model identifies that

additional resources, beyond those positioned in accordance with the Firm’s Positioning Framework, are

required by the MSEs in resolution, this additional requirement informs the amount of capital or liquidity

provided by MS Parent or the Funding IHC to each MSE under the Firm’s Support Agreement.

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The model projects the wind down of each MSE, including projections of revenues, expenses, balance

sheet, cash flows and their wind down over the period. The rates of wind down used by the MSE

Financial Model reflect the fact that services capacity may scale at a different rate than the business

wind-down and therefore mitigates timing risks caused by mismatches in supply and demand for services.

At all times during the Resolution Period, as in BAU, each MSE will maintain sufficient working capital to

support the peak two months of each MSE’s BAU operating expenses.

4.3.4.6. Operational Continuity Playbooks

The Firm has developed four operational continuity playbooks to describe plans and specific actions

taken in support of shared and outsourced services.

Exhibit 4-6. Operational Continuity Playbooks

Playbook Purpose

Employee Retention

Playbook

Provides plans for Human Resources and business management to

identify and retain personnel considered critical for the execution of the

Resolution Strategy, including the related governance bodies and decision-

making process

Facilities and Fixed Assets

Continuity Playbook

Describes the Firm’s plan to maintain: (i) continuity of access to Firm

identified critical facilities, (ii) core facilities services to keep facilities

functional, (iii) workplace support services to an acceptable level and to

alleviate the Firm of Corporate Services managed liabilities and obligations

to the extent practicable

Technology Continuity

Playbook

Details arrangements and continuity plans relating to global technology

systems and infrastructure in support of the Firm’s Resolution Strategy

Vendor Continuity Playbook Describes the methodology used to identify Critical Vendors and the

processes the Firm has in place to manage vendors in BAU

Each playbook details the Firm’s plan for maintaining operational continuity in a resolution scenario and

includes (i) a description of the assessment the Firm performed to identify critical services or personnel,

(ii) the actions the Firm will take in a resolution scenario to maintain continuity of resolution-critical

services as well as critical personnel and (iii) the Firm’s contingency strategies in the unlikely event of the

loss of access to critical services or personnel.

4.3.5. Legal Obstacles Associated with Emergency Motions

The Resolution Plan includes the Firm’s strategy to satisfy the conditions necessary to satisfy the creditor

protection conditions of the ISDA Protocols via an emergency Guarantee Administrative Priority Motion

that causes the claims of the counterparties under MS Parent credit enhancements to be elevated to

administrative priority status in MS Parent’s Chapter 11 proceeding. In addition to the requested relief,

the Guarantee Administrative Priority Motion addresses potential legal obstacles that arise without the

implementation of the permanent stay on QFC cross defaults.

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The Firm’s Bankruptcy Playbook outlines the basic process for preparing for MS Parent’s bankruptcy filing

and addresses the key issues in the days and weeks preceding and immediately following the bankruptcy

filing. The Bankruptcy Playbook ties the key steps that are necessary to prepare for the bankruptcy filing

to the triggers, timeframes and escalation processes described in the MS Parent Governance Playbook

and addresses the Legal Obstacles Associated with Emergency Motions capability from the 2019

Guidance. MS Parent actions and related items within the Bankruptcy Playbook include:

• An “ISDA Protocols Playbook” that analyzes issues associated with the implementation of the

stay on cross default rights described in Section 2 of the ISDA Protocols and provides an

actionable guide to supplement the related motions and memoranda with a day-to-day description

of the steps that would be taken in the periods before entering and upon commencement of the

bankruptcy proceeding;

• A refreshed Guarantee Administrative Priority Motion to, consistent with the requirements of the

ISDA Protocols, (i) elevate guarantees of subsidiary QFCs to administrative expense status as

preferred relief or (ii) transfer certain of MS Parent assets and guarantee obligations of subsidiary

QFCs to a new holding company owned by a trust for the sole benefit of MS Parent’s bankruptcy

estate as alternative relief; and

• An actionable document completion guide, including other forms of the key motions and other

documents necessary to be filed with the Bankruptcy Court to implement the Resolution Strategy.

The ISDA Protocols and the QFC Stay Rules represent a key development in eliminating the potentially

destabilizing effects of early terminations of QFCs due to the inclusion of cross-default rights on the

orderly resolution of a G-SIB and enhance the ability of the Firm to unwind its QFCs in an orderly manner

in accordance with its Resolution Strategy. In response to the 2019 Guidance, the Firm analyzed the

impact of early termination rights in QFCs on MS Parent’s resolution, including legal issues associated

with the implementation of the stay on cross-default rights, and expects that counterparties would not be

able to exercise cross-default rights that would otherwise be available upon MS Parent’s insolvency,

assuming full compliance with the QFC Stay Rules by January 1, 2020.

The Firm has undertaken a “QFC Remediation Project” which seeks to address various resolution-

related impediments associated with contractual provisions contained within the Firm’s QFCs. In addition

to compliance with the QFC Stay Regulations and associated adherence to the ISDA Protocols, the Firm

has, since 2014, been engaged in an ongoing institutional QFC identification and digitization effort.

4.3.5.1. Bankruptcy Playbook

The Bankruptcy Playbook sets forth MS Parent’s strategic actions from the Recovery Period through the

Resolution Period. The Bankruptcy Playbook describes the basic process for preparing for MS Parent’s

bankruptcy filing, key issues that will need to be addressed in the days and weeks preceding and

immediately following the bankruptcy filing, and legal obstacles associated with emergency motions.

The Bankruptcy Playbook includes a step-by-step bankruptcy plan that lays out the steps that would need

to be taken to prepare for the bankruptcy filing and ties such steps to the Trigger and Escalation

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Framework. Key MS Parent actions serve as the main chapter headers, with triggers and time frames

signaling the commencement and end of such actions noted in each chapter.

Key MS Parent actions and related items within the Bankruptcy Playbook include:

• Provision of financial support to the Material Entities prior to filing for Chapter 11, while the Firm’s

Material Entities are supported by capital and liquidity provided by the Funding IHC following the

Chapter 11 filing;

• Oversight of the execution of business sales;

• An ISDA Protocols Playbook that analyzes issues associated with the implementation of the stay

on cross default rights described in Section 2 of the ISDA Protocols and provides an actionable

guide to supplement the related motions and memoranda with a day-to-day description of the

steps that would be taken in the periods before entering, and upon commencement of, MS

Parent’s bankruptcy proceeding;

• Other emergency and routine first day motions, including indications of requisite information and

the sources of such information;

• An enhanced Guarantee Administrative Priority Motion to obtain Bankruptcy Court approval to

elevate guarantees of subsidiary QFCs to administrative expense status, consistent with the

requirements of the ISDA Protocols;

• Subsidiary terminations of QFCs with MS Parent, including close-out processes and resultant

financial impacts;

• Establishment of and interaction with the creditors’ committee;

• Execution of resolution operating agreements and other interactions with Material Entities;

• Payments to Critical Vendors;

• Issuance of a disclosure statement and plan of reorganization; and

• Description of the resulting organization upon completion of the resolution process.

The Bankruptcy Playbook seeks to evidence that:

• MS Parent, leveraging its pre-drafted forms and advance planning, is able to prepare and

commence the Chapter 11 Proceeding quickly and in an orderly manner;

• MS Parent’s commencement of a voluntary case under Chapter 11 of the Bankruptcy Code does

not result in any payment defaults to the customers and counterparties of the Material Entities

and their Critical Functions;

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• MS Parent and Funding IHC financial resources will be made available to the Material Entities to

meet their needs in resolution in a way that preserves the value of the Material Entities and

minimizes the risk of potential creditor challenges to such support;

• The Firm can be resolved in an orderly manner without any reliance on U.S. or foreign

government financial support; and

• Governance Mechanisms exist to facilitate timely decision making and action execution by MS

Parent and the Funding IHC.

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5. Recovery and Resolution Planning Governance

5.1. RRP Governance

The Firm has a robust resolution planning and governance framework designed to ensure that all aspects

of the Firm’s resolution planning—including development, review, approval and maintenance of the

Resolution Plan—receive appropriate attention by management and the MS Parent Board. The

governance framework relies upon meaningful engagement across the Firm and leverages established

roles and responsibilities and committee charters. As a result, resolution plan development, review,

approval and maintenance activities at the Firm are fully integrated into the corporate governance

structure.

From a day-to-day perspective, the resolution planning process is overseen by the “Executive

Sponsors” and the Chair of the “RRP Steering Committee,” and managed by “Firm RRP.” Resolution

planning is a highly integrated set of BAU processes at the Firm, with defined components owned directly

by applicable BUs or SCFs (with advisory and coordination support from Firm RRP), fostering integration

of the themes of resolvability directly into day-to-day processes and Firm culture. Similar recovery and

resolution planning governance processes exist at certain other entities, such as the U.S. Banks and the

U.K. MOEs.

The Resolution Plan was formally approved by the RRP Steering Committee, the RRP Committee and

the Risk Committee of the Board and such approvals are reflected in their respective minutes.

5.2. Resolution Plan Review and Challenge Framework

The Resolution Plan content undergoes several rounds of vetting and challenges throughout the

development process. The Firm established a Resolution Plan Review and Challenge Framework to

expand the breadth and depth of the content reviews throughout the planning cycle by facilitating

appropriate challenge opportunities.

The Firm structured its Resolution Plan Review and Challenge Framework to be organized by

resolvability capabilities. This capability-led approach brought together cross-functional teams to provide

comprehensive feedback on the Firm’s capabilities required to support the Resolution Strategy. The

objectives of each session were to:

• Assess if recent enhancements to the Firm’s capabilities (if any) sufficiently address regulatory

guidance and/or internal priorities;

• Confirm the feasibility of approaches articulated in the Firm’s Resolution Strategy, core

capabilities, playbooks and related assessments;

• Challenge underlying assumptions for analyses and articulated approaches;

• Identify potential inconsistencies across Resolution Plan modules and sections documentation;

• Enhance and clarify Resolution Plan documentation based on lessons learned; and

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• Assess whether the Firm has adequately incorporated capabilities into BAU to maintain ongoing

resolvability.

To ensure robust challenge, Firm RRP worked with capability owners to identify appropriate session

participants. Consistant with embedding the Resolution Plan Review and Challenge Framework into BAU,

the RRP Steering Committee has assumed additional responsibilities related to the capabilities review

and challenge. As an informed, cross-functional body that is knowledgeable about the Firm’s Resolution

Strategy, the RRP Steering Committee is well-positioned to provide meaningful challenge and feedback.

Lastly, MRM performed an independent review and challenge of the Firm’s financial modeling

capabilities. MRM independently reviewed and validated models utilized within the Firm’s 2019 Plan,

based on defined requirements for overall data quality as well as model usage, validation, documentation,

and testing. It also provided an appropriate level of review and challenge of the embedded assumptions

in a manner compliant with SR Letter 11-7, Guidance on Model Risk Management.

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6. Recovery and Resolution Enhancement Program The earlier sections describe the actions the Firm has undertaken to continue to enhance its resolvability

and to address the 2019 Guidance. To help ensure appropriate focus and consistency in these

enhancement efforts, the Firm established the RREP. Projects enter and exit the RREP as needed to

bolster the governance and prioritization of these efforts.

From 2015–2017, the RREP projects successfully changed the Firm’s practices, processes, systems and

structure to enhance its resolvability capabilities under the Bankruptcy Code. Following the completion of

the 2017 Plan, the Firm updated the RREP with a revised set of projects based on identified

enhancements. In general, RREP projects are executed on an as-needed basis. Projects are identified to

respond to new regulatory guidance and requirements or address self-identified enhancement

opportunities for more strategic solutions. Enhancements to resolvability are always a key driver,

although projects within the RREP portfolio may also contain select deliverables, drivers and

requirements that fall outside of the remit of resolution planning.

Oversight of the RREP portfolio and associated remediation efforts is provided by the Firm’s RRP

Committee, the Firm’s Enterprise Risk Oversight Committee (“EROC”), the RRP Steering Committee and

multiple divisional-level governance bodies with responsibility for overseeing individual projects. The

Board of Directors of MS Parent is apprised of the status and delivery on the RREP portfolio through

regular reporting from EROC and periodic updates from Firm RRP.

Firm RRP ensures that (i) projects align with the Firm’s resolvability objectives and are well-coordinated;

(ii) remediation activities are appropriately prioritized, resourced and budgeted; and (iii) progress is

consistently tracked and any delivery challenges are promptly escalated and mitigated.

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7. Conclusion The Firm’s 2019 Plan articulates a Resolution Strategy detailing how the Firm would be resolved under a

range of scenarios and how potential vulnerabilities that might otherwise hinder or prevent a rapid, orderly

and value-maximizing resolution would be addressed and overcome. This Resolution Strategy is

supported by extensive resolution planning efforts that have been refined and enhanced over a period of

years. Moreover, the Firm has put in place a number of practices to help manage its resolvability over

time and address risks that may emerge on account of changes in business practices, financial profile or

organizational structure.

The Firm believes that its 2019 Plan presents a feasible and credible strategy that demonstrates that the

Firm can be resolved without adverse effects on financial stability in the U.S. or on the broader global

economy. Based upon the strength of its capital and liquidity positions and the resiliency and credibility of

the Resolution Strategy under a wide range of scenarios, the Firm believes that no losses would be

incurred by the U.S. government, the FDIC’s DIF nor any foreign governments or taxpayers as a result of

its failure. The 2019 Plan provides greater detail on all of the actions completed by the Firm to address

Agency Guidance and other enhancements to resolvability capabilities. With these actions, the Firm

believes that it has the capabilities required to execute its Resolution Strategy.

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8. Forward Looking Statements Certain statements contained herein may constitute “forward-looking statements” within the meaning of

the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements,

which reflect management’s beliefs and expectations, are subject to risks and uncertainties that may

cause actual results to differ materially. For a discussion of the risks and uncertainties that may affect the

Firm’s future results, see “Forward-Looking Statements” immediately preceding Part I, Item 1,

“Business—Competition” and “Business—Supervision and Regulation” in Part I, Item 1, “Risk Factors” in

Part I, Item 1A of the Firm’s Annual Report on Form 10-K for the year ended December 31, 2018 and

“Liquidity and Capital Resources—Regulatory Requirements” and “Regulatory Developments” of the

Firm’s Quarterly Report on Form 10-Q for the period ended March 31, 2019.

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9. Appendix A: Description of Core Business Lines The Firm is a global financial services firm that maintains significant market positions in each of its Core

Business Lines: ISG, WM and IM. The designation of the Firm’s Core Business Lines serves as an

important first step to the development of the Firm’s Resolution Strategy and the supporting processes to

wind down, transfer or sell those business operations. As per the 165(d) Rule, the Firm considers its

Core Business Lines of ISG, WM and IM to be “those business lines, including associated services,

functions and support, that in the Firm’s view, upon failure, would result in material loss of revenue, profit

or franchise value.” These business lines represent those identified to be engaged in Critical Functions,

to be highly marketable and/or to be strategically important to the Firm.

ISG

The Firm’s ISG Core Business Line provides financial advisory and capital-raising services, as well as

assistance accessing capital markets and taking or hedging risk, to a diverse group of corporate and

other institutional clients globally. ISG’s business activities include providing advice on M&A,

restructurings, real estate and project finance, corporate lending, investment activities, and providing

sales, trading, financing and market-making activities in equity and fixed income securities and related

products, including FX and commodities, both as principal and as agent. ISG operates primarily through

MSBNA and seven MOEs: MSCO, MSIP, MSMS, MSCG, MSCS, MSBAG and MSESE.

ISG operates through three divisions:

• IED, which acts as agent and principal (including as a market-maker) in executing transactions

globally in cash equity, equity related products, equity derivatives and equity-linked or related

products, as well as offering a full suite of PB services;

• FID, which trades and makes markets in fixed income securities and related products (including

commodities products); is a primary dealer, distributor or market marker in various government

securities; acts as an intermediary between borrowers and lenders of short-term funds; provides

funding for inventory positions; originates and distributes loans; and provides warehouse lending;

and

• IBD (including Global Capital Markets), which offers financial advisory and capital raising services

to corporations, organizations and governments globally, including through capital raising

services, financial advisory services and corporate lending.

Additionally, BRM is responsible for the Firm’s securities financing transactions (including securities sold

under agreements to repurchase (“repurchase agreements”) and securities lending), hedging multiple

valuation adjustments associated with fixed income and commodities derivatives and optimizing

resources associated with the Firm’s cleared activity and collateral management globally.

As of December 31, 2018, ISG had total assets of approximately $646.4 billion, which was approximately

75.7% of the Firm’s total assets.

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WM

The Firm’s WM Core Business Line provides investment solutions designed to accommodate the

investment objectives, risk tolerance and liquidity needs of individual investors and small-to-medium-sized

businesses and institutions. WM operates through a network of more than 16,000 global representatives

in approximately 600 locations as of December 31, 2018. WM operates primarily through three MOEs

MSBNA, MSPBNA and MSSB, and two MSEs, MSSBF and MSSBFA.

WM provides clients with an extensive array of financial solutions, including the following services:

• Brokerage and investment advisory services tracking various types of investments;

• Fixed income principal trading, which primarily facilitates clients’ trading or investments in such

securities;

• Education savings programs, financial and wealth planning services, annuity and other insurance

products;

• Cash management services, including deposits, debit cards, electronic bill payments and check

writing (including some services offered through unaffiliated third parties);

• Securities-based lending, mortgage loans and home equity lines of credit;

• Access to trust and fiduciary services, cash management and commercial credit solutions for

small- and medium- sized businesses in the U.S.;

• Individual and corporate retirement solutions, including individual retirement accounts and 401(k)

plans; and

• Stock plan services to corporate executives and businesses.

WM also operates through the Firm’s two U.S. national bank subsidiaries, which offer select banking and

cash management services to WM customers, including FDIC-insured deposits and Portfolio Loan

Accounts, mortgages and tailored lending solutions. As of December 31, 2018, in aggregate, WM’s

banking entities MSBNA and MSPBNA held approximately $121.2 billion and $65.9 billion, respectively,

in Bank Deposit Program (“BDP”) deposits.

IM

The Firm’s IM Core Business Line provides a broad suite of investment management solutions to a

diverse client base that includes governments, institutions, corporations, pension plans and individuals

worldwide. IM had 667 investment professionals around the world, with approximately $463.1 billion in

assets under management as of December 31, 2018. IM provides investment and advisory services

predominantly through MSIM Inc. and MSIM Ltd., along with other affiliates.

IM’s investment strategies span the risk/return spectrum across investment styles and asset classes,

including active fundamental equity, global fixed income, global liquidity/money market mutual funds,

solutions and multi-asset alternatives, merchant banking, and real estate. IM delivers its strategies as an

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advisor through a number of investment vehicles, including U.S. registered investment companies,

Luxembourg-based “sociétés d’investissement à capital variable”, separately managed accounts and

private investment funds.

Core Business Line Financial Information

The following exhibits summarize the revenues and income for each of the Core Business Lines in the

first quarter of 2019:

Income Statements

Exhibit 9-1. ISG Income Statement from March 31, 2019 Form 10-Q

Three Months Ended

March 31,

$ in millions 2019 2018 % Change Revenues Investment banking $ 1,151 $ 1,513 (24)%

Trading 3,130 3,643 (14)%

Investments 81 49 65%

Commissions and fees 621 744 (17)%

Asset management 107 110 (3)%

Other 222 136 63%

Total non-interest revenues 5,312 6,195 (14)%

Interest income 3,056 1,804 69%

Interest expense 3,172 1,899 67%

Net interest (116) (95) (22)% Net revenues 5,196 6,100 (15)%

Compensation and benefits 1,819 2,160 (16)%

Non-compensation expenses 1,782 1,828 (3)% Total non-interest expenses 3,601 3,988 (10)%

Income from continuing operations before income taxes 1,595 2,112 (24)%

Provision for income taxes 190 449 (58)%

Income from continuing operations 1,405 1,663 (16)%

Income (loss) from discontinued operations, net of income taxes — (2) 100%

Net income 1,405 1,661 (15)%

Net income applicable to noncontrolling interests 34 34 —%

Net income applicable to Morgan Stanley $ 1,371 $ 1,627 (16)%

Exhibit 9-2. WM Income Statement from March 31, 2019 Form 10-Q

Three Months Ended

March 31, $ in millions 2019 2018 % Change Revenues Investment banking $ 109 $ 140 (22)%

Trading 302 109 177%

Investments 1 — N/M

Commissions and fees 406 498 (18)%

Asset management 2,361 2,495 (5)%

Other 80 63 27%

Total non-interest revenues 3,259 3,305 (1)%

Interest income 1,413 1,280 10%

Interest expense 283 211 34%

Net interest 1,130 1,069 6%

Net revenues 4,389 4,374 —%

Compensation and benefits 2,462 2,450 —%

Non-compensation expenses 739 764 (3)%

Total non-interest expenses 3,201 3,214 —%

Income from continuing operations before income taxes 1,188 1,160 2%

Provision for income taxes 264 246 7%

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Three Months Ended

March 31, $ in millions 2019 2018 % Change Net income applicable to Morgan Stanley $ 924 $ 914 1%

N/M—Not Meaningful

Exhibit 9-3. IM Income Statement from March 31, 2019 Form 10-Q

Three Months Ended

March 31, $ in millions 2019 2018 % Change Revenues Trading $ (3 ) $ 5 (160)%

Investments 191 77 148%

Asset management 617 626 (1)%

Other 3 10 (70)%

Total non-interest revenues 808 718 13%

Interest income 4 1 N/M

Interest expense 8 1 N/M

Net interest (4 ) — N/M

Net revenues 804 718 12%

Compensation and benefits 370 304 22%

Non-compensation expenses 260 266 (2)%

Total non-interest expenses 630 570 11%

Income from continuing operations before income taxes 174 148 18%

Provision for income taxes 33 19 74%

Net income 141 129 9%

Net income applicable to noncontrolling interests 5 2 150% Net income applicable to Morgan Stanley $ 136 $ 127 7%

N/M—Not Meaningful

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10. Appendix B: Description of Material Entities The bulk of the Firm’s activities are conducted through its Material Entities.

The process to designate legal entities as “material” is an important starting point for the Firm’s Resolution

Plan, allowing those legal entities that are most significant to the Firm’s Core Business Lines to be

identified and corresponding resolution strategies for these legal entities to be developed. As per its

regulatory definition from the Final Rule, a Material Entity is “a subsidiary or foreign office of the covered

company that is significant to the activities of a critical operation or core business line.”26 The Firm

designates its Material Entities using a defined and repeatable process, which consists of quantitative

screens, qualitative considerations, review and challenge and formal approval by the RRP Steering

Committee. As summarized in Exhibit 2-1. List of Material Entities Included in the 2019 Plan, for its 2019

Plan, the Firm designated 28 of its entities as Material Entities, consisting of 12 MOEs and 16 MSEs. The

Firm defines an MOE as a legal entity that offers products or services to clients or counterparties and

earns a significant portion of any Core Business Lines’ profits. The Firm defines an MSE as a legal entity

that owns or controls resources that are significant to the continuity of the Firm’s Core Business Line

activities, as executed by MOEs, but which is not an MOE itself. The Firm’s MOEs and MSEs are

described in this section. The Firm’s interconnectedness is discussed in Appendix F: Interconnectedness.

ISG Entities

ISG operates its non-bank businesses primarily through the seven MOEs as described below. It also

operates banking businesses through one MOE, MSBNA.

Morgan Stanley & Co. LLC (MSCO)

MSCO operates as the Firm’s primary institutional U.S. broker-dealer and as a futures commission

merchant and acts as a swap dealer. MSCO engages in the provision of financial services to

corporations, governments, financial institutions and institutional investors. Its businesses include

securities underwriting and distribution; brokerage and investment advisory services; securities research;

sales, trading, financing and market making in equity securities and related products and fixed income

securities and related products including foreign exchange; equity, fixed income and commodity listed

and OTC derivatives transactions; listed futures and options execution and clearing services; PB

services; securities lending and borrowing; financial advisory services, including advice on mergers and

acquisitions, restructurings, real estate and project finance; credit and other lending products; and cash

management services. To conduct this business, MSCO maintains various regulatory registrations,

including with the SEC as a broker-dealer, with the Municipal Securities Rulemaking Board as a municipal

securities dealer, with the Federal Reserve Board as a primary dealer and with the Commodity Futures

Trading Commission (“CFTC”) as a futures commission merchant and provisionally as a swap dealer.

26 MS Parent is considered as the Firm’s covered company and is not evaluated for Material Entity designation, but MS Parent’s activities are nevertheless in-scope for the Resolution Plan.

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As of December 31, 2018, MSCO had assets of $303.6 billion, liabilities of $295.6 billion and equity of

$8.02 billion. MSCO had $6.73 billion net revenues and $1.04 billion net income for the year ending

December 31, 2018 (all financials presented using U.S. GAAP).

Morgan Stanley & Co. International plc (MSIP)

MSIP operates as the Firm’s primary European broker-dealer and is a UK authorized financial services

firm whose principal activity is the provision of financial services to corporations, governments and

financial institutions. MSIP’s services include capital raising; financial advisory services, including advice

on mergers and acquisitions, restructurings, real estate and project finance; corporate lending; sales and

trading, and financing and market making activities in equity and fixed income securities and related

products, including foreign exchange and commodities. MSIP is authorized by the UK PRA and regulated

by the UK Financial Conduct Authority (“FCA”), the PRA and the National Futures Association, and is

provisionally registered with the CFTC as a swap dealer.

MSIP operates branches in Seoul, Amsterdam, Zurich, Warsaw, the Dubai International Financial

Centre and the Qatar Financial Centre. MSIP’s branches are authorized in the European Union

(“EU”) under the Markets in Financial Instruments Directive (“MiFID”) or by local regulators in each

other jurisdiction.

As of December 31, 2018, MSIP had assets of $252.9 billion, liabilities of $235.1 billion and equity of

$17.8 billion. MSIP had $5.4 billion net revenues and $650 million net income for the year ending

December 31, 2018 (all financials presented using U.S. GAAP).

Morgan Stanley MUFG Securities Co., Ltd. (MSMS)

MSMS is the Firm’s Japanese broker-dealer, operated as a securities joint venture with Mitsubishi UFJ

Financial Group, Inc. (“MUFG”). The Firm has a 51% voting interest in MSMS (through Morgan Stanley

Japan Holdings Co., Ltd., a Firm consolidated entity) and a 40% economic interest in the overall joint

venture with MUFG, which includes MSMS and Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.

MSMS focuses on trading fixed income and equity securities and provides sales and trading, capital

markets and research services to corporations and institutional clients, with a focus on institutional clients

transacting in Japanese products. MSMS is primarily regulated by the Japanese Financial Services

Agency (among other regulators) and is provisionally registered with the CFTC as a swap dealer. MSMS

has no branches or offices outside Japan.

As of December 31, 2018, MSMS had assets of $48.1 billion, liabilities of $46.35 billion and equity of $1.7

billion. MSMS had $840 million net revenues and $206 million net income for the year ending December

31, 2018 (all financials presented using U.S. GAAP).

Morgan Stanley Capital Services LLC (MSCS)

MSCS is the Firm’s primary OTC derivatives dealer and also centrally manages the market risk

associated with a substantial amount of the Firm’s OTC derivatives businesses, including transactions

cleared by central clearinghouses. Significant products traded include equity swaps; interest rate

derivatives; credit derivatives and FX derivatives. MSCS also holds equities, bonds and listed derivatives

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as hedges to its OTC derivatives positions. MSCS is regulated by the CFTC and the National Futures

Association and is provisionally registered with the CFTC as a swap dealer. As of December 31, 2018,

MSCS had assets of $81.1 billion, liabilities of $74.9 billion and equity of $6.1 billion. MSCS had $1.3

billion net revenues and $111 million net loss for the year ending December 31, 2018 (all financials

presented using U.S. GAAP).

Morgan Stanley Capital Group Inc. (MSCG)

MSCG acts in transactions as a principal, engaging in sales and trading activities across the energy,

metals and agricultural commodity sectors. MSCG trades in physical commodities and associated

derivative and futures products, and makes markets in spot, forward, swap and futures markets priced

based on commodities. In cases in which MSCG is trading listed products (e.g., futures, listed options on

futures and cleared swaps), these transactions are cleared through a central exchange, consistent with

DCM and SEF requirements. MSCG is a CFTC registered swap dealer and margins its bilateral

counterparties on over-the-counter activities consistent with the requirements of section 4s(e) of the

Commodity Exchange Act. As of December 31, 2018, MSCG had assets of $12.3 billion, liabilities of

$11.15 billion and equity of $1.14 billion. MSCS had $609 million net revenues and $157 million net

income for the year ending December 31, 2018 (all financials presented using U.S. GAAP).

Morgan Stanley Bank Aktiengesellschaft (MSBAG)

MSBAG is a fully licensed bank (a Capital Requirements Regulation (“CRR”) credit institution), including

MiFID services. MSBAG provides services primarily to clients in Germany and Austria. Offerings include

mergers and acquisitions, corporate finance, equity and debt capital markets, and sales and trading

activities. MSBAG is authorized by the German Federal Financial Supervisory Authority (“Bundesanstalt

für Finanzdienstleistungsaufsicht” – “BaFin”) and regulated by BaFin and the German Central Bank

(“Deutsche Bundesbank”).

As of December 31, 2018, MSBAG had assets of $3.5 billion, liabilities of $3.15 billion and equity of $316

million. MSBAG had $119 million net revenues and $17 million net income for the year ending December

31, 2018 (all financials presented using U.S GAAP).

In the first quarter of 2019, the Firm has made changes to both its legal entity structure and certain

booking practices in the Europe, the Middle East and Africa (“EMEA”) region due to a possible exit of the

United Kingdom from the European Union impacting also the scope of business being conducted on

MSBAG. MSBAG now forms part of the “MSEHSE Group,” consisting of Morgan Stanley Europe Holding

SE, MSESE and MSBAG. The scale of activities of MSBAG will continue to evolve throughout 2019 and

2020 depending on political developments.

Morgan Stanley Europe SE (MSESE)

MSESE is the Firm´s new broker-dealer (CRR investment firm) established for purposes of managing

certain business activities to clients in the European Economic Area (“EEA”). To further this purpose,

MSESE has obtained membership with EU exchanges, clearing houses and trading venues. MSESE is

envisaged to become Morgan Stanley’s primary investment services hub to operate the ISG business in

the EEA in case of the United Kingdom´s exit from the EU. It provides multiple services including, but not

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limited to, financial advisory services, sales and trading (including the execution of Morgan Stanley

client’s flow on in-scope EEA exchanges), market making, securities lending, financing, hedging and

clearing services for selected products in equity and fixed income securities and related products,

including foreign exchange and commodities. The scale of activities of MSESE will continue to evolve

throughout 2019 and 2020 depending on political developments and client demands. MSESE is

authorized by BaFin and regulated by BaFin and the Deutsche Bundesbank. It forms part of the MSEHSE

Group.

Wealth Management Entities

WM operates its non-bank business primarily through one U.S. broker-dealer entity, MSSB. WM also

operates banking businesses through one MOE, MSBNA, and, to a lesser extent, a second U.S. insured

depository institution, MSPBNA.

Morgan Stanley Smith Barney LLC (MSSB)

MSSB is a U.S. registered broker-dealer that provides financial services to clients through a network of

more than 16,000 financial advisors in approximately 600 locations across the U.S. MSSB financial

advisors serve retail and middle market investors with an emphasis on ultra-high net worth, high net worth

and affluent investors. MSSB provides solutions designed to accommodate individual investment

objectives, risk tolerance and liquidity needs, including such significant products as brokerage and

investment advisory services, fixed income principal trading (primarily to facilitate clients’ trading or

investments in such securities) and education savings programs, financial and wealth planning services,

annuity and other insurance products, as well as access to deposit, cash management, loan and credit

services for individuals, small and medium-sized businesses in the U.S., retirement accounts, 401(k)

plans and stock plan services. MSSB is registered with the SEC as a broker-dealer and as an investment

adviser. MSSB deregistered as a futures commission merchant and is registered as an introducing

broker with the CFTC and introduces futures business to MSCO.

As of December 31, 2018, MSSB had assets of $27.44 billion, liabilities of $16.78 billion and equity of

$10.66 billion. MSSB had $13.6 billion net revenues and $975 million net income for the year ending

December 31, 2018 (all financials presented using U.S. GAAP).

Morgan Stanley Bank, N.A. (MSBNA)

MSBNA is a U.S. insured depository institution that is headquartered in Salt Lake City, Utah and has

representative offices in New York, New York. MSBNA’s businesses are concentrated in institutional

lending and securities-based lending for clients of its affiliated broker-dealers. Certain foreign exchange

trading activities are also conducted by MSBNA. MSBNA is regulated by the Office of the Comptroller of

the Currency (“OCC”), among other regulators, and is registered with the CFTC as a swap dealer.

As of December 31, 2018, MSBNA had assets of $149.8 billion, liabilities of $134.6 billion and equity of

$15.22 billion. MSBNA had $4.33 billion net revenues and $2.91 billion net income for the year ending

December 31, 2018 (all financials presented using U.S. GAAP).

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Morgan Stanley Private Bank, N.A. (MSPBNA)

MSPBNA is a U.S. insured depository institution that is headquartered in Purchase, New York. MSPBNA

is a federally chartered national association whose activities are subject to comprehensive regulation and

examination by the OCC. MSPBNA has access to low cost deposits swept from WM clients’ brokerage

accounts, eliminating the need for a physical branch network typical of its competitors. MSPBNA is

regulated by the OCC, among other regulators.

As of December 31, 2018, MSPBNA had assets of $75.2 billion, liabilities of $67.99 billion and equity of

$7.18 billion. MSPBNA had $1.82 billion net revenues and $1.0 billion net income for the year ending

December 31, 2018 (all financials presented using U.S. GAAP).

Investment Management Entities

The IM business operates primarily through two Material Entities, MSIM Inc. and MSIM Ltd.

Morgan Stanley Investment Management, Inc. (MSIM Inc.)

MSIM Inc. is a registered investment advisor in the U.S. for certain mutual funds and other institutional

products and one of two Material Entities of the IM business. MSIM Inc. is also the investment sub-

adviser to certain mutual funds, and to certain fund and institutional accounts advised by MSIM Ltd. MSIM

Inc. is registered as an investment adviser with the SEC, as a commodity pool operator and commodity

trading adviser with the CFTC, and with Canadian, Chinese, Indian and Korean securities regulators. As

of December 31, 2018, MSIM Inc. had assets of $1.62 billion, liabilities of $739 million and equity of $884

million. MSIM Inc. had $876 million net revenues and $108 million net income for the year ending

December 31, 2018 (all financials presented using U.S. GAAP).

Morgan Stanley Investment Management Limited (MSIM Ltd.)

MSIM Ltd. is a UK authorized financial services company that is the primary IM entity in EMEA. The only

activities in which it engages are the provision of IM services to institutional and fund managed clients.

MSIM Ltd. serves as the investment advisor to Active Fundament Equity, Global Fixed Income and

Solutions & Multi-Asset funds. MSIM Ltd. is primarily regulated by the UK FCA but is also registered with

the SEC as an investment advisor and with a number of foreign securities regulators.

As of December 31, 2018, MSIM Ltd. had assets of approximately $581 million, liabilities of $267 million

and equity of $314 million. MSIM Ltd. had $880 million net revenues and $108 million net income for the

year ending December 31, 2018 (all financials presented using U.S. GAAP).

Material Service Entities

Morgan Stanley Services Group Inc. (MSSG)

MSSG is the primary U.S. support services company. It is responsible for providing the preponderance of

services to U.S. entities. It is responsible for the governance and supervision of the majority of services

that flow into the U.S. from the Firm’s affiliates, globally. MSSG was created through an extensive series

of restructurings, personnel migrations and asset migrations pursuant to the “Gladiator Program.”

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As of December 31, 2018, MSSG had assets of $4.6 billion, liabilities of $4.6 billion and equity of $3

million. MSSG had $6.86 billion net revenues and $19 million net loss for the year ending December 31,

2018 (all financials presented using U.S. GAAP).

MS Financing LLC (MSFL)

MSFL’s main function is the financing of fixed assets for North America. Aside from its role as an indirect

owner and lessee of tangible real estate property to affiliates, MSFL does not conduct significant business

activities. MSFL leases tangible personal property to other affiliates. MSFL is headquartered in New

York and indirectly owns properties in the state of New York for the use of the Firm’s operating

businesses.

As of December 31, 2018, MSFL had assets of $1.74 billion, liabilities of $1.68 billion and equity of $59

million. MSFL had $633 million net revenues and $7 million net income for the year ending December 31,

2018 (all financials presented using U.S. GAAP).

Morgan Stanley UK Group (MSUKG)

MSUKG’s primary service is to provide physical workspace to the Firm employees residing in the UK who

support the Firm’s UK entities including MSIP, MSIM Ltd and MSUKL. The provided physical workspace

is all located in the UK and is leased (not owned) by MSUKG. MSUKG provides a full range of property

services in support, including physical security to all of the Firm’s UK entities.

As of December 31, 2018, MSUKG had assets of $762 million, liabilities of $696 million and equity of $66

million. MSUKG had $195 million net revenues and $12 million net loss27 for the year ending December

31, 2018 (all financials presented using U.S. GAAP).

Morgan Stanley UK Limited (MSUKL)

MSUKL acts as an employment company that is responsible for the payment of all remuneration and

benefits due to the Firm employees residing in the UK who support the Firm’s UK entities. As part of its

provision of employment services, MSUKL is the contractual counterparty (the sponsoring employer) to

the Firm’s pension plan in the UK. MSUKL serves as an MSE in the UK and provides shared services

such as operations, technology, HR and accounting services.

As of December 31, 2018, MSUKL had assets of $1.84 billion, liabilities of $1.74 billion and equity of

$105 million. MSUKL had $2.1 billion net revenues and an $12 million net loss for the year ending

December 31, 2018 (all financials presented using U.S. GAAP).

Morgan Stanley Smith Barney Financing LLC (MSSBF)

MSSBF’s primary activities are to hold real estate leases for MSSB’s branch offices and finance fixed

assets for Wealth Management. Its activities are primarily conducted in the U.S.

27 Non-interest expense and equity in undistributed income (loss) of subsidiary(ies) of MSUKG resulted in a higher net income than revenue.

Public Section 84

As of December 31, 2018, MSSBF had assets of $943 million, liabilities of $586 million and equity

of $357 million. MSSBF had $590 million net revenues and $1 million net loss for the year ending

December 31, 2018 (all financials presented using U.S. GAAP).

Morgan Stanley Smith Barney FA Notes Holding LLC (MSSBFA)

MSSBFA engages in the administration of notes related to the recruiting and retention of MSSB financial

advisors and certain financial advisor compensation programs. Its activities are primarily conducted in the

U.S.

As of December 31, 2018, MSSBFA had assets of $3.4 billion, liabilities of $2.4 billion and equity of $981

million. MSSBFA had $5 million net revenues and $0 million net income for the year ending December

31, 2018 (all financials presented using U.S. GAAP).

Morgan Stanley Japan Group Co., Ltd (MSJG)

MSJG provides information technology, administration and personnel-related services, including human

resources, payroll, welfare, professional education and training, to Firm affiliates in Japan.

As of December 31, 2018, MSJG had assets of $479 million, liabilities of $421 million and equity of $58

million. MSJG had $459 net revenues and $8 million net loss for the year ending December 31, 2018.

Morgan Stanley Services Canada Corp (MSSCC)

MSSCC serves as Canada’s shared service provider, delivering technology services globally. MSSCC

center houses full-time employees (front- and back-office), support contingent workers, fixed assets and

real estate leases. As of December 31, 2018, MSSCC had assets of $115 million, liabilities of $25 million

and equity of $90 million. MSSCC had $266 million net revenues and $25 million net income for the year

ending December 31, 2018 (all financials presented using U.S. GAAP).

Morgan Stanley Hungary Analytics Limited (MSHAL)

MSHAL is a deployment center and is part of the Firm’s location support strategy. MSHAL is a shared

service provider and delivers Finance, Risk, Operations, Technology and Research services from

Hungary to the Firm’s offices globally.

As of December 31, 2018, MSHAL had assets of $121 million, liabilities of $64 million and equity of $57

million. MSHAL had $182 million net revenues and $4 million net income for the year ending December

31, 2018 (all financials presented using U.S. GAAP).

Morgan Stanley Advantage Services Private Limited (MSASPL)

MSASPL28 is a deployment center and is part of the Firm’s location support strategy. MSASPL teams

provide support services from India to various businesses within the ISG, WM and IM world across the

Firm’s offices globally. As of December 31, 2018, MSASPL had assets of $261 million, liabilities of $60

28 Morgan Stanley Solutions India Private Limited was merged into MSASPL on March 1, 2018.

Public Section 85

million and equity of $201 million. MSASPL had $254 million net revenues and $30 million net income for

the year ending December 31, 2018 (all financials presented using U.S. GAAP).

Morgan Stanley Management Services (Shanghai) Limited (MSMSSL)

MSMSSL is China’s primary shared service provider, delivering Technology and Firm operations services.

These include maintaining access to critical applications and the underlying technology infrastructure.

The Firm’s China houses support full-time employees and contingent workers, fixed assets, contracts and

real estate leases. As of December 31, 2018, MSMSSL had assets of $139 million, liabilities of $46

million and equity of $93 million. MSMSSL had $119 million net revenues and $3 million net loss for the

year ending December 31, 2018 (all financials presented using U.S. GAAP).

Morgan Stanley Services Holdings (MSSH)

MSSH acts as payroll processing entity for personnel in the Americas. MSSH processes and funds

payroll for all North American employees.

As of December 31, 2018, MSSH had assets of $1.4 billion, liabilities of $1.31 billion and equity of $81

million. MSSH had $-18 million net revenues and $-7 million net income29 for the year ending December

31, 2018 (all financials presented using U.S. GAAP).

Morgan Stanley Asia Limited (MSAL)

MSAL is a licensed corporation under the Hong Kong Securities and Futures Ordinance. The principal

activities of the company consist of investment banking, foreign exchange sales and trading, and

introductory brokerage. MSAL provides shared services to other Firm entities.

As of December 31, 2018, MSAL had assets of $1.92 billion, liabilities of $621 million and equity of $1.3

billion. MSAL had $1.83 billion net revenues and $236 million net income for the year ending December

31, 2018 (all financials presented using U.S. GAAP).

Morgan Stanley Hong Kong Ltd (MSHKL)

MSHKL holds fixed assets for the benefit of the Firm’s companies in Hong Kong.

As of December 31, 2018, MSHKL had assets of $1.98 billion, liabilities of $31 million and equity of $1.95

billion. MSHKL had $75 million net revenues and $317 million net income30 for the year ending

December 31, 2018 (all financials presented using U.S. GAAP).

Morgan Stanley Employment Services UK Limited (MSES)

MSES is comprised of 2,050 front-office employees. MSES serves primarily as an employment services

company in the UK.

29 Applicable income taxes and equity in undistributed income (loss) of subsidiary(ies) of MSSH resulted in a higher net income than revenue.

30 Equity in undistributed income (loss) of subsidiary(ies) of MSHKL resulted in a higher net income than revenue.

Public Section 86

As of December 31, 2018, MSES had assets of $1.24 billion, liabilities of $1.21 billion and equity of $30

million. MSES had $1.24 billion net revenues and $14 million net loss for the year ending December 31,

2018 (all financials presented using U.S. GAAP).

Morgan Stanley Holdings LLC (MSH)

MSH serves as the Firm’s Funding IHC, providing funding flexibility in stress and in resolution. Under the

Firm’s Resolution Strategy, MSH would serve as a resolution funding vehicle that would supply capital

and liquidity to the Material Entities in times of stress and in resolution in a manner that is resilient to

creditor challenge. MSH funds MSCO and the Material Service Entities in BAU, and all remaining Material

Entities in Resolution.

Public Section 87

11. Appendix C: Summary Financial Information Exhibit 11-1 shows the Firm’s Consolidated Statement of Financial Position from the March 31, 2019

Form 10-Q.

Exhibit 11-1. Consolidated Statement of Financial Position from March 31, 2019 Form 10-Q

$ in millions, except share data

(Unaudited) At

March 31, 2019

At December 31,

2018

Assets Cash and cash equivalents:

Cash and due from banks $ 35,472 $ 30,541

Interest bearing deposits with banks 14,498 21,299

Restricted cash 30,712 35,356

Trading assets at fair value ($103,750 and $120,437 were pledged to various parties) 264,818 266,299

Investment securities (includes $61,641 and $61,061 at fair value) 97,944 91,832

Securities purchased under agreements to resell (includes $5 and $— at fair value) 96,570 98,522

Securities borrowed 138,891 116,313

Customer and other receivables 52,667 53,298

Loans: Held for investment (net of allowance of $259 and $238) 101,266 99,815

Held for sale 14,931 15,764

Goodwill 6,686 6,688

Intangible assets (net of accumulated amortization of $2,952 and $2,877) 2,084 2,163

Other assets 19,425 15,641

Total assets $ 875,964 $ 853,531

Liabilities Deposits (includes $692 and $442 at fair value) $ 179,731 $ 187,820

Trading liabilities at fair value 144,565 126,747

Securities sold under agreements to repurchase (includes $622 and $812 at fair value) 47,948 49,759

Securities loaned 12,508 11,908

Other secured financings (includes $4,283 and $5,245 at fair value) 8,043 9,466

Customer and other payables 193,092 179,559

Other liabilities and accrued expenses 17,494 17,204

Borrowings (includes $56,464 and $51,184 at fair value) 190,691 189,662

Total liabilities 794,072 772,125

Commitments and contingent liabilities (see Note 11)

Equity Morgan Stanley shareholders’ equity:

Preferred stock 8,520 8,520

Common stock, $0.01 par value: Shares authorized: 3,500,000,000; Shares issued: 2,038,893,979; Shares outstanding:

1,685,996,391 and 1,699,828,943 20 20

Additional paid-in capital 23,178 23,794

Retained earnings 66,061 64,175

Employee stock trusts 3,000 2,836

Accumulated other comprehensive income (loss) (2,473 ) (2,292)

Common stock held in treasury at cost, $0.01 par value (352,897,588 and 339,065,036 shares) (14,582 ) (13,971)

Common stock issued to employee stock trusts (3,000 ) (2,836)

Total Morgan Stanley shareholders’ equity 80,724 80,246

Noncontrolling interests 1,168 1,160

Public Section 88

$ in millions, except share data

(Unaudited) At

March 31, 2019

At December 31,

2018 Total equity 81,892 81,406

Total liabilities and equity $ 875,964 $ 853,531

The Federal Reserve Board establishes capital requirements for the Firm, including well-capitalized

standards, and evaluates the Firm’s compliance with such capital requirements. The OCC establishes

similar capital requirements and standards for the Firm’s U.S. subsidiary banks.

The U.S. banking regulators have comprehensively revised their risk-based and leverage capital

framework to implement many aspects of the Basel III capital standards established by the Basel

Committee. The Firm and its U.S. subsidiary banks became subject to U.S. Basel III on January 1, 2014.

As an “Advanced Approaches” banking organization, the Firm is required to compute risk-based capital

ratios under both the U.S. Basel III Standardized approach framework and U.S. Basel III Advanced

approach framework. The U.S. Basel III Standardized Approach modifies certain U.S. Basel I-based

methods for calculating RWAs and prescribes new standardized risk weights for certain types of assets

and exposures. The Firm is required to calculate and hold capital against credit, market and operational

RWAs. RWAs reflect both on- and off-balance sheet risk of the Firm. The Firm is subject to a “capital

floor” such that these regulatory capital ratios currently reflect the lower of the ratios computed under

each approach, taking into consideration applicable transitional provisions.

Exhibit 11-2 presents the Firm’s capital measures under the U.S. Basel III Advanced Approach

transitional rules and the minimum regulatory capital ratios, as of December 31, 2018. The Firm’s

Common Equity Tier 1 risk-based capital ratio was 17.1% (fully phased-in, using the U.S. Basel III

Advanced Approach) and Tier 1 risk-based capital ratio was 19.5%. The “capital floor” is represented by

the U.S. Basel III Advanced Approach.

Exhibit 11-2. Morgan Stanley Capital Measures as of December 31, 2018

At December 31, 2018

Transitional Fully Phased-In $ in millions Standardized Advanced Standardized Advanced Risk-based capital Common Equity Tier 1 capital $ 60,398 $ 60,398 $ 62,086 $ 62,086

Tier 1 capital 68,097 68,097 70,619 70,619

Total capital 78,917 78,642 80,052 79,814

Total RWAs 340,191 358,141 367,309 363,054

Common Equity Tier 1 capital ratio 17.8 % 16.9% 16.9 % 17.1 %

Tier 1 capital ratio 20.0 % 19.0% 19.2 % 19.5 %

Total capital ratio 23.2 % 22.0% 21.8 % 22.0 % Leverage-based capital Adjusted average assets1 $ 811,402 N/A $ 843,074 N/A

Tier 1 leverage ratio2 8.4 % N/A 8.4 % N/A

Funding Sources

The Firm manages its funding in a manner that reduces the risk of disruption to its operations. It pursues

a strategy of diversification of secured and unsecured funding sources (by product, investor and region)

Public Section 89

and attempts to ensure that the tenor of its liabilities equals or exceeds the expected holding period of the

assets being financed. The Firm funds its balance sheet on a global basis through diverse sources,

which may include equity capital, long-term borrowings, repurchase agreements, securities lending,

deposits, letters of credit and lines of credit. The Firm has active financing programs for both standard

and structured products targeting global investors and currencies.

Secured Financing

A substantial portion of the Firm’s total assets consist of liquid marketable securities and short-term

receivables arising principally from sales and trading activities in ISG. The liquid nature of these assets

provides the Firm with flexibility in managing the composition and size of its balance sheet. The Firm’s

goal is to achieve an optimal mix of durable secured and unsecured financing. Secured financing

investors principally focus on the quality of the eligible collateral posted. Accordingly, the Firm actively

manages the secured financing book based on the quality of the assets being funded.

The Firm utilizes shorter-term secured financing only for highly liquid assets and has established longer

tenor limits for less liquid asset classes, for which funding may be at risk in the event of a market

disruption. The Firm defines highly liquid assets as government-issued or government-guaranteed

securities with a high degree of fundability and less liquid assets as those that do not meet these criteria.

At December 31, 2018 and December 31, 2017, the weighted average maturity of its secured financing of

less liquid assets was greater than 120 days. To further minimize the refinancing risk of secured

financing for less liquid assets, the Firm has established concentration limits to diversify its investor base

and reduce the amount of monthly maturities for secured financing of less liquid assets. Furthermore, the

Firm obtains term secured funding liabilities in excess of less liquid inventory as an additional risk mitigant

to replace maturing trades in the event that secured financing markets, or its ability to access them,

become limited. As a component of its liquidity risk management framework, the Firm holds a portion of

its GLR against the potential disruption to its secured financing capabilities.

The Firm also maintains a pool of liquid and easily fundable securities, which provide a valuable future

source of liquidity. With the implementation of liquidity standards, the Firm has also incorporated high-

quality liquid asset classifications that are consistent with the U.S. Liquidity Coverage Ratio definitions

into its encumbrance reporting, which further substantiates the demonstrated liquidity characteristics of

the unencumbered asset pool and the Firm’s ability to readily identify new funding sources for such

assets.

Unsecured Financing

The Firm views long-term debt and deposits as stable sources of funding. Unencumbered securities and

non-security assets are financed with a combination of long-term and short-term debt and deposits. The

Firm’s unsecured financings include structured borrowings, whose payments and redemption values are

based on the performance of certain underlying assets, including equity, credit, foreign exchange, interest

rates and commodities. When appropriate, the Firm may use derivative products to conduct asset and

liability management and to make adjustments to its interest rate and structured borrowings risk profile.

Public Section 90

Deposits

Available funding sources to the Firm’s U.S. bank subsidiaries include demand deposit accounts, money

market deposit accounts, time deposits, repurchase agreements, federal funds purchased and Federal

Home Loan Bank advances. The vast majority of deposits in the Firm’s U.S. bank subsidiaries are

sourced from retail brokerage accounts and are considered to have stable, low-cost funding

characteristics. At December 31, 2018 and December 31, 2017, deposits were $187,820 million and

$159,436 million, respectively.

Short-Term Borrowings

The Firm’s unsecured short-term borrowings may primarily consist of structured notes, bank loans and

bank notes with original maturities of 12 months or less. At December 31, 2018 and December 31, 2017,

the Firm had approximately $2,036 million and $2,034 million, respectively, in short-term borrowings.

Long-Term Borrowings

The Firm believes that accessing debt investors through multiple distribution channels helps

provide consistent access to the unsecured markets. In addition, the issuance of long-term

borrowings allows the Firm to reduce reliance on short-term credit sensitive instruments. Long-

term borrowings are generally managed to achieve staggered maturities, thereby mitigating

refinancing risk, and to maximize investor diversification through sales to global institutional and

retail clients across regions, currencies and product types. Availability and cost of financing to the

Firm can vary depending on market conditions, the volume of certain trading and lending activities,

the Firm’s credit ratings and the overall availability of credit.

The Firm may engage in various transactions in the credit markets (including, for example, debt

retirements) that it believes are in its investors’ best interests.

Exhibit 11-3. Borrowings by Remaining Maturity at December 31, 2018

$ IN MILLIONS

PARENT

COMPANY SUBSIDIARIES TOTAL

Due in 2019 $19,849 $4,845 $24,694

Due in 2020 18,575 2,705 21,280

Due in 2021 21,208 3,434 24,642

Due in 2022 14,969 1,816 16,785

Due in 2023 11,553 2,385 13,938

Thereafter 70,093 16,685 86,778

Total $156,247 $31,870 $188,117

Public Section 91

12. Appendix D: Memberships in Material Payment, Clearing and Settlement Systems

Exhibit 12-1 contains a representative list of the Firm’s top memberships in payment, clearing and

settlement systems. For additional information on the Firm’s payment, clearing and settlement activities,

refer to Section 4.3.1 Payment, Clearing and Settlement Activities.

Exhibit 12-1. Morgan Stanley’s Top FMUs

CENTRAL COUNTERPARTY CLEARING HOUSES (CCPS)

CENTRAL SECURITIES DEPOSITORIES (CSDS)

FX SETTLEMENT AGENT BANKS

Chicago Mercantile Exchange BOJ CLS BNY Mellon

Eurex ClearStream SA Citigroup

Fixed Income Clearing Corporation Depository Trust Company BNP Paribas

ICE Clear Credit Euroclear Bank HSBC

ICE Clear Europe Euroclear EUI (CREST) RBC

Japan Securities Clearing Corporation Euroclear France MUFG

LCH Ltd. HKSCC

LCH SA JASDEC

NSCC KSD

Options Clearing Corporation

Public Section 92

13. Appendix E: Foreign Operations The Firm operates in both U.S. and non-U.S. markets. The Firm’s non-U.S. business activities are

principally conducted and managed through European and Asia-Pacific locations. As of December 31,

2018, the Firm had 60,348 employees worldwide.

The net revenues disclosed in Exhibit 13-1 reflect the regional view of the Firm’s consolidated net

revenues on a managed basis, based on the following methodology:

• Institutional Securities: advisory and equity underwriting – client location; debt underwriting –

revenue recording location; sales and trading – trading desk location;

• Wealth Management: wealth management representatives operate in the Americas; and

• Investment Management: client location, except for Merchant Banking and Real Estate

Investing businesses, which are based on asset location.

Exhibit 13-1. Net Revenues by Region from March 31, 2019 Form 10-Q

Net Revenues by Region

Three Months Ended

March 31, $ in millions 2019 2018

Americas $ 7,321 $ 8,018

EMEA 1,702 1,708

Asia-Pacific 1,263 1,351 Net revenues $ 10,286 $ 11,077

The following are the Firm’s non-U.S. MOEs and the products and services they offer:

• MSIP: MSIP is the Firm’s primary European broker-dealer. MSIP provides services to

corporations, governments and financial institutions including capital raising; financial advisory

services, including advice on mergers and acquisitions; restructuring; real estate and project

finance; corporate lending; sales and trading; financial and market making activities in equity and

fixed income securities and related products, including foreign exchange and commodities; and

investment activities. MSIP operates branches in Seoul, Amsterdam, Zurich, Warsaw, the Dubai

International Financial Centre and the Qatar Financial Centre.

• MSIM Ltd.: MSIM Ltd. is the primary IM entity in EMEA. As such, the only activities in which it

engages are the provision of IM services to institutional and fund managed clients. MSIM Ltd.

serves as the investment advisor to Active Fundament Equity, Global Fixed Income and Solutions

& Multi-Asset funds.

• MSMS: MSMS is the Firm’s Japanese broker-dealer and the most significant of the Firm’s

subsidiaries in Japan. MSMS has been operating its broker-dealer business for more than 30

years in Japan. All business transacted on the entity is within the Firm’s ISG Core Business Line.

MSMS provides sales and trading, capital markets and research services to corporations and

institutional clients. Transactions involving Japan Government Bonds, either as the primary trade

or as collateral on other positions, represent a significant proportion of MSMS’s activities. MSMS

Public Section 93

primarily serves institutional clients transacting in Japanese products. It also serves Japan-based

clients trading offshore products. Transactions for offshore clients and for offshore products are

largely executed through its offshore affiliates. MSMS also trades with other Firm affiliates,

primarily for the purposes of hedging positions resulting from client trading. In particular, MSMS

sources derivatives for hedging from MSCS and MSCG.

• MSESE: MSESE is the Firm´s new broker-dealer (CRR investment firm) established for purposes

of managing certain business activities to clients in the EEA. To further this purpose, MSESE has

obtained membership with EU exchanges, clearing houses and trading venues. MSESE is

envisaged to become Morgan Stanley’s primary investment services hub to operate the ISG

business in the EEA in case of the exit of the United Kingdom from the European Union. It

provides multiple services including, but not limited to, financial advisory services, sales and

trading (including the execution of Morgan Stanley client’s flow on in-scope EEA exchanges),

market making, securities lending, financing, hedging and clearing services for selected products

in equity and fixed income securities and related products, including foreign exchange and

commodities. The scale of activities of MSESE will continue to evolve throughout 2019 and 2020

depending on political developments and client demands. MSESE is authorized by BaFin and

regulated by BaFin and the Deutsche Bundesbank. It forms part of the MSEHSE Group.

• MSBAG: MSBAG is a fully licensed bank (CRR credit institution), including MiFiD

services. MSBAG provides services primarily to clients in Germany and Austria. Offerings

include mergers and acquisitions, corporate finance, equity and debt capital markets, and sales

and trading activities. MSBAG is authorized by BaFin and regulated by BaFin and the Deutsche

Bundesbank. In the first quarter of 2019, the Firm has made changes to both its legal entity

structure and certain booking practices in the EMEA region due to a possible exit of the United

Kingdom from the European Union impacting also the scope of business being conducted on

MSBAG. MSBAG now forms part of the MSEHSE Group. The scale of activities of MSBAG will

continue to evolve throughout 2019 and 2020 depending on political developments.

Public Section 94

14. Appendix F: Interconnectedness The Firm’s legal entity structure facilitates a rapid and orderly resolution, including with respect to the

sales of WM and IM and the wind down of ISG. Each Core Business Line operates largely on a distinct

set of Material Entities,31 and each Core Business Line has clean ownership structures supporting

separability. The Firm has also established operationally and financially resilient MSEs, which are

separate and distinct from its MOEs.

While some level of interconnectedness between Material Entities is inherent in a global business such as

the Firm, a core goal of resolution planning is to ensure that such relationships are rational and would not

impede the Firm’s orderly resolution.

The Firm’s Material Entities generally fall into four categories:

• Core Business Line Subsidiaries: Non-bank operating companies and dedicated service

entities that transact with the Core Business Line’s customers and counterparties and hold

licenses or memberships to engage in certain activities:

o ISG MOEs include MSCO, MSIP, MSMS, MSCG, MSCS, MSBAG and MSESE

o WM MOEs include MSSB.

o IM MOEs include MSIM Inc. and MSIM Ltd.

• Bank Subsidiaries: Insured depository institutions that take deposits and provide loans and

other banking products to their customers:

o WM MOEs include MSBNA and MSPBNA.

• Shared Service Entities: Dedicated service entities that provide corporate and support services

to operating companies, such as technology, real estate and payroll services, and support all

Core Business Lines and Critical Functions:

o Includes the MSEs shared across Core Business Lines.

• Holding Companies: Raise debt and equity funding, and invest or loan proceeds to

subsidiaries:

o MS Parent32

There are broadly three types of relationships through which interconnections between Material Entities

exist:

31 The primary exception is MSBNA, which offers both ISG and WM products and services. As an insured depository institution, MSBNA’s interconnection with ISG is at arm’s-length pursuant to regulatory requirements. These connections therefore would not impede the sale of MSBNA together with the WM business.

32 MS Parent is technically the “Covered Company,” not a Material Entity, as per the 165(d) Rule, but is fully in scope for the Firm’s resolution planning exercises.

Public Section 95

• Funding Relationships: Material Entities may have funding relationships with affiliates in which

an entity raises funds and lends those funds to its affiliates. Examples include unsecured debt

(e.g., long-term debt), equity funding and secured funding (e.g., repurchase agreements or

securities lending). To mitigate the potential misallocation of resources in resolution, the Firm

implemented the Funding IHC structure in 2019. The Funding IHC was established to preserve

funding flexibility and enhance the ability to allocate financial resources as needed to Material

Entities in resolution. MS Parent will contribute assets to the Funding IHC to provide capital and

liquidity to Material Entities both before and after an MS Parent bankruptcy filing.

• Service Relationships: Material Entities may have service relationships with affiliates in which

an entity obtains ownership or control of operational resources (e.g., personnel or real estate) and

then uses those resources to support the activities of an affiliate. Examples include clearing and

settlement, technology, facilities and payroll services.

• Transactional Relationships: Material Entities may have transactional relationships with

affiliates in which (i) an entity faces a client and transfers its exposure to another entity for risk

management (ii) an entity maintains direct access to an FMU or agent bank and then acts as

principal to intermediate such access for an affiliate. Examples include securities and derivatives

transactions and related FMU and agent bank access.

Material Entity interconnections are most prominent for (i) funding relationships in which MS Parent

provides funding to Material Entities and (ii) service relationships in which MSEs provide support to other

Material Entities.

A majority of the Firm’s MSEs are Shared Service Entities that provide a variety of services to the Firm’s

MOEs across jurisdictions, as described in Exhibit 14-1.

Exhibit 14-1. Identification of Material Service Entities by Jurisdiction

JURISDICTION MATERIAL

SERVICE ENTITY PRINCIPAL SERVICE CATEGORIES

PRIMARY PROVIDERS TO MATERIAL ENTITIES

U.S.

MSSG

Personnel

Software

Data centers

Fixed assets

All Material Entities

MSFL

Owned real estate

Vendor contracts

Fixed assets

All U.S. Material Entities

MSSH Payroll All U.S. Material Entities

MSSBF

Software

Fixed assets

Real estate leases

Vendor contracts

All U.S. Material Entities

MSSBFA Other (e.g. issuance of FA notes) MSSB

Public Section 96

JURISDICTION MATERIAL

SERVICE ENTITY PRINCIPAL SERVICE CATEGORIES

PRIMARY PROVIDERS TO MATERIAL ENTITIES

UK

MSUKL

Owned real estate

Software

Payroll

Vendor contracts

All Material Entities

MSUKG Vendor contracts

Data centers MSIP

MSES Personnel MSIP, MSIM Ltd.

Japan MSJG

Data centers

Payroll

Vendor contracts

MSMS

Canada MSSCC Vendor contracts All Material Entities

Hungary MSHAL Vendor Contracts All Material Entities

India MSASPL

Data centers

Payroll

Vendor contracts

All Material Entities

China MSMSSL Vendor contracts All Material Entities

Hong Kong MSAL

Data centers

Payroll

Vendor contracts

All Material Entities

MSHKL Owned real estate All Material Entities

Within each Core Business Line, additional interconnections may exist across all types of relationships.

Within the Firm’s ISG Core Business Line, for instance, MOEs have transactional relationships driven

largely by differences between the legal entities that transact with clients and counterparties in local

markets around the globe, on one hand, and the legal entities offering the products that such clients and

counterparties require, on the other. Such financial interconnections between these entities are used to

manage risk and satisfy regulatory requirements. The most common forms of financial interconnections

among ISG MOEs are secured funding and derivatives relationships, as well as related FMU and agent

bank access. Significant examples of each type of interconnection within ISG are provided in Exhibit

14-2. All of the ISG MOEs may receive these services. In addition to interconnections within the ISG

Core Business Line described in this exhibit, other Firm entities—predominantly MS Parent—provide

credit support with respect to some transactions of MOEs.

Exhibit 14-2. Interconnections within ISG Core Business Line

RELATIONSHIP TYPE DESCRIPTION PRIMARY PROVIDERS TO ISG

MATERIAL ENTITIES

Secured Funding

MOEs use inter-affiliate secured funding transactions (e.g., repurchase agreements, securities lending) to finance their securities positions or

borrow securities from affiliates that serve as regional market hubs for

those activities.

MSCO, MSIP,

MSMS, MSBAG,

MSESE

Public Section 97

RELATIONSHIP TYPE DESCRIPTION PRIMARY PROVIDERS TO ISG

MATERIAL ENTITIES

Derivatives

MOEs use inter-affiliate OTC derivatives and FX transactions to, for

example: (i) execute hedge transactions with market-making

businesses operated by affiliates that offer the hedging product or

(ii) enter into market-making transactions with the customers or counterparties of the MOE’s affiliates.

MSIP, MSCS,

MSCO, MSBNA,

MSMS, MSCG

In addition to ISG interconnections, the Firm has identified interconnections within WM and IM MOEs.

Significant examples of each type of interconnection within WM are provided in Exhibit 14-3.

Exhibit 14-3. Interconnections within WM Core Business Line

RELATIONSHIP TYPE DESCRIPTION PRIMARY PROVIDERS TO WM MATERIAL

ENTITIES

Deposit Funding

MSBNA and MSPBNA funding is primarily through cash deposits of MSSB clients through the BDP.

MSBNA provides WM with a mechanism to provide FDIC

insurance protection to its clients’ cash balances as well as a means to generate accretive returns to the Firm.

MSBNA, MSPBNA, MSSB

Lending MSBNA and MSPBNA offer lending products for

customers of its affiliate retail broker-dealer, MSSB. MSBNA, MSPBNA, MSSB

Significant examples of each type of interconnection within IM are provided in Exhibit 14-4.

Exhibit 14-4.Interconnections within IM Core Business Line

RELATIONSHIP TYPE DESCRIPTION PRIMARY PROVIDERS TO IM MATERIAL

ENTITIES

Advisor

MSIM Inc. is the investment sub-advisor to certain mutual

funds and fund and institutional accounts advised by MSIM

Ltd.

MSIM Inc., MSIM Ltd.

The Firm’s top FMUs and agent banks are listed in Appendix D. The Firm’s MOEs access these PCS

providers either directly through their own memberships or indirectly through other affiliates with direct

memberships. For ISG, indirect access to top FMUs in the U.S., EMEA and Japan markets is primarily

provided by MSCO, MSIP and MSMS, respectively. For WM, MSSB primarily has its own direct

memberships to the top FMUs that it utilizes.

MS Parent guarantees the payment obligations of certain subsidiaries and certain subsidiaries guarantee

the payment obligations of certain affiliates. As required by the Firm’s “Parent Company Guarantee

Policy,” MS Parent is the preferred issuer for all guarantees. The Parent Company Guarantee Policy

outlines the guidelines to be followed by Corporate Treasury when issuing MS Parent guarantees. In

situations where an MS Parent guarantee does not satisfy the applicable regional legal, regulatory and/or

business requirements, a guarantee may be issued by an MS Parent subsidiary, subject to the

Consolidated Subsidiary Guarantee Policy. As required by the Federal Reserve Board’s final rules

Public Section 98

regarding total loss absorbing capacity, long term debt and clean holding company requirements,33 the

Firm now prohibits the issuance of a guarantee that contains a default right related to the insolvency of

MS Parent, unless the guarantee is separately subject to the Federal Reserve Board’s and OCC’s final

rules regarding resolution stay requirements for QFCs, which also impose certain restrictions on

interconnectedness for QFCs.34

33 Board of Governors of the Federal Reserve System, Final Rule, Total Loss-Absorbing Capacity, Long-Term Debt, and Clean Holding Company Requirements for Systemically Important U.S. Bank Holding Companies and Intermediate Holding Companies of Systemically Important Foreign Banking Organizations, 82 Fed. Reg. 8266 (Jan. 24, 2017). 34 Board of Governors of the Federal Reserve System, Final Rule, Restrictions on Qualified Financial Contracts of Systemically Important U.S. Banking Organizations and the U.S. Operations of Systemically Important Foreign Banking Organizations; Revisions to the Definition of Qualifying Master Netting Agreement and Related Definitions, 82 Fed. Reg. 42882 (Sept. 12, 2017); Office of the Comptroller of the Currency, Final Rule, Mandatory Contractual Stay Requirements for Qualified Financial Contracts, 82 Fed. Reg. 56630 (Nov. 29, 2017).

Public Section 99

15. Appendix G: Material Supervisory Authorities The Firm is subject to extensive regulation by U.S. federal and state regulatory agencies and securities

exchanges and by regulators and exchanges in each of the major markets where the Firm conducts

business. Moreover, in response to the 2007-2008 financial crisis, legislators and regulators, both in the

U.S. and worldwide, have adopted, continue to propose or are in the process of implementing a wide

range of reforms that have resulted or that may in the future result in major changes to the way the Firm is

regulated and conducts its business. These reforms include the Dodd-Frank Act; risk-based capital,

leverage and liquidity standards adopted or being developed by the Basel Committee on Banking

Supervision, including Basel III, and the national implementation of those standards; capital planning and

stress testing requirements; the QFC Stay Rules; and new resolution regimes that are being developed in

the U.S. and other jurisdictions. While certain portions of these reforms are effective, others are still

subject to final rulemaking or transition periods. Exhibit 15-1 identifies material supervisory authorities for

the Firm’s MOEs.

Exhibit 15-1. Supervisory Authorities

SUPERVISOR JURISDICTION

Commodity Exchange, now a division of CME U.S.

Commodity Futures Trading Commission U.S.

Consumer Financial Protection Bureau U.S.

Federal Deposit Insurance Corporation U.S.

Federal Energy Regulatory Commission U.S.

Federal Reserve Board U.S.

Financial Industry Regulatory Authority, Inc. U.S.

Municipal Securities Rule Board U.S.

National Futures Association U.S.

New York Mercantile Exchange, now a division of CME U.S.

North American Securities Administrators Association U.S.

Office of the Comptroller of the Currency U.S.

Securities and Exchange Commission U.S.

Prudential Regulation Authority UK

Financial Conduct Authority UK

Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) Germany

Deutsche Bundesbank (German Central Bank) Germany

Bank of Japan Japan

Financial Services Agency Japan

Japan Securities Dealers Association Japan

Public Section 100

SUPERVISOR JURISDICTION

Securities and Exchange Surveillance Commission Japan

Reserve Bank of India Mumbai

Hong Kong Securities and Futures Commission Hong Kong

In addition to the regulators shown, MSIP’s branches in the Netherlands and Poland operate under the

“passport” available to investment firms authorized in the EU under the MiFID. MSIP’s other branches

are authorized by local regulators in each jurisdiction.

Public Section 101

16. Appendix H: Principal Officers Exhibit 16-1identifies the executive officers of MS Parent and their current titles.

Exhibit 16-1. Morgan Stanley Principal Officers

OFFICER POSITION

James P. Gorman Chairman of the Board and Chief Executive Officer

Eric F. Grossman Executive Vice President and Chief Legal Officer

Keishi Hotsuki Executive Vice President and Chief Risk Officer

Colm Kelleher President

Jonathan M. Pruzan Executive Vice President and Chief Financial Officer

Daniel A. Simkowitz Head of Investment Management

Jeffrey S. Brodsky Executive Vice President and Chief Human Resources Officer

Public Section 102

17. Glossary

TERM ACRONYM DEFINITION

165(d) Rule Federal Reserve Board Regulation QQ, 12 CFR Part 243 and Federal Deposit Insurance

Corporation Regulation 12 CFR Part 381

2017 Plan The Firm's 2017 Title I Resolution Plan

2019 Guidance Guidance for 2019 § 165(d) Annual Resolution Plan Submissions by Domestic Covered Companies that Submitted Resolution Plans in July 2017

2019 Plan The Firm's 2019 Title I Resolution Plan

Agencies A collective term for the Board of Governors of the Federal Reserve System and the Federal

Deposit Insurance Corporation

Agent Bank A financial institution that allows the Firm to access payment, clearing and settlement infrastructure in markets in which the Firm does not maintain direct access

Annual

Resolvability

Enhancement Assessment

AREA

The Firm's process to assess, in an objective and formal manner, the sufficiency of existing

practices that support robust recovery and resolution preparedness, relative to explicit regulatory

rules, expectations and guidance. Through AREA, the Firm evaluates its ability to execute certain

functions and produce the data, reporting and analysis (inclusive of contractual, financial, risk and operational information, at the appropriate level of detail) that would be required to execute the

Resolution Strategy in a timely manner

Asset and

Liability Committee

ALCO

A type of governance body that is responsible for overseeing capital adequacy, funding

requirements and liquidity risk management from various perspectives (e.g., the Firm, segment, region or entity)

Banks A collective term for the Firm's bank legal entities, inclusive of (but not limited to) MSBNA and

MSPBNA

Bank Deposit

Program BDP

Deposit program through which free credit balances in accounts of MSSB customers are

automatically deposited into deposit accounts at MSBNA and MSPBNA

Bank of Japan BOJ

Bank Resource

Management BRM

A division within ISG that is responsible for the Firm’s securities financing transactions (including

repurchase agreements and securities lending), hedging multiple valuation adjustments

associated with Fixed Income derivatives, optimizing resources associated with the Firm’s cleared

activity (cash/listed/OTC and securities financing transactions) as well as optimizing collateral

management globally

Bankruptcy

Code Title 11 of the U.S. Code, as amended

Bankruptcy Court

The U.S. Bankruptcy Court with jurisdiction over the Chapter 11 Proceedings

Bankruptcy

Governance

Trigger

A trigger occurring upon a Support Trigger that would require the process for consideration and

approval of a bankruptcy filing to be initiated and escalated to the MS Parent Board

Basel

Refers to the Basel III agreement, which updates and strengthens the Basel Accords set by the Basel Committee on Bank Supervision and includes requirements related to the minimum amount

of common equity and minimum liquidity ratio for banks and additional requirements for those

banks deemed as "systemically important banks"

Baseline/Action Zone

Business-as-usual, normal operating environment

Billion Bn

BNP Paribas BNP

Board of

Directors Board

Public Section 103

TERM ACRONYM DEFINITION

Booking Model Framework

The Firm’s framework for managing its booking models

Booking Model

Office

Responsible for the operationalization, governance and communication of the Booking Model

Framework

BRM Command

Firm's command and control protocol that provides globally coordinated communications and

governs the Firm's preparedness, organization, escalation and response to events that could

potentially impact the Firm's financial position

Bundesanstalt

für

Finanzdienstleis

tungsaufsicht

BaFin German Federal Financial Supervisory Authority

Business

Management

Refers to a division within the Firm that serves in one or more of the following capacities:

- Business Administration

- Program/Project Management

- Strategy, Governance and Compliance

Business Unit BU Organization or group within the Firm that represents a specific front-office business function

Business-as-

Usual BAU Normal operating environment

Calculation

Trigger

A trigger that is meant to indicate that the Firm is potentially in distress but not yet in Material

Financial Distress

Capabilities Ability of the Firm to produce critical information and perform critical activities in a timely manner

under developing stress conditions

Central

Counterparty CCP

Facilitates the clearing and settlement of certain financial transactions by serving as the

intermediary of credit risk between the buyer and seller of such transactions

Central

Securities

Depositories

CSDs FMU holding shares either in certificated or uncertificated (dematerialized) form so that ownership

can be easily transferred

Chapter 11 Chapter 11 of the U.S. Bankruptcy Code

Committee on

Uniform

Securities

Identification Procedures

CUSIP

Commodity

Futures Trading

Commission

CFTC

Common Equity

Tier 1 CET1

Contractually

Binding

Mechanism

A support agreement or other legally binding contract that is designed to mitigate potential creditor

challenges to the provision of capital and liquidity support by a top-tier or intermediate holding

company to its subsidiaries during a time of financial distress

Contributable

Assets

Certain assets of MS Parent that may be used to make capital contributions and provide liquidity

to Material Entities pursuant to the Support Agreement

Core Business Line

CBL

Pursuant to the 165(d) Rule, Core Business Lines means those business lines of the Firm,

including associated operations, services, functions and support, that, in the view of the Firm, upon failure would result in a material loss of revenue, profit, or franchise value. The Firm has

defined its Core Business Lines as ISG, WM and IM

Critical Of essential importance to Resolution Strategy execution

Public Section 104

TERM ACRONYM DEFINITION

Critical

Contracts

All written contracts, other than QFCs, that relate to the receipt of inter-affiliate and third-party services, products or resources that would be necessary for the business of a Material Entity to

function during an orderly resolution and are not promptly substitutable without a material adverse

effect on the Material Entity’s operation during resolution

Critical Economic

Function

Product/activity of the Firm for which a withdrawal or disorderly wind down could have a material impact on the UK economy or financial system.

Critical

Functions A collective term referring to the Firm's Critical Operations and Critical Economic Functions

Critical

Operations

Pursuant to the 165(d) Rule, Critical Operations means those operations of the Firm, including associated services, functions and support, the failure or discontinuance of which, in the view of

the Firm or as jointly directed by the Agencies, would pose a threat to the financial stability of the

U.S.

Critical

Personnel Critical Personnel are employees who perform or support critical services in resolution

Critical Vendor

A vendor that provides services that would be necessary for the business of a Material Entity to

function during an orderly resolution, and that is not promptly substitutable without a material

adverse effect on the Material Entity's operation during resolution

Demand Deposit Account

Deposit account with a bank or other financial institution that allows the depositor to withdraw his or her funds from the account without warning or with less than seven days' notice

Deposit

Insurance Fund DIF The FDIC’s deposit insurance fund

Derivatives

Segmentation

and Forecasting

The Firm’s capability to segment and model the wind down of its derivatives portfolio

Dodd-Frank Act Dodd-Frank Wall Street Reform and Consumer Protection Act

Deutsche

Bundesbank German Central Bank

Employee

Retention

Playbook

Playbook providing plans for HR and business management to identify and retain personnel

considered critical for the execution of the Resolution Strategy, including the related governance

bodies and decision-making process

Enterprise Risk

Oversight Committee

EROC

Euro EUR

Europe, Middle

East and Africa EMEA

European Economic Area

EEA International agreement uniting EU Member States and three additional States (Iceland, Liechtenstein and Norway) into a single market

European Union EU

Executive

Sponsors Firm Chief Legal Officer and Chief Financial Officer

Federal Deposit Insurance

Corporation

FDIC

Federal

Reserve Board The Board of Governors of the Federal Reserve System

Finance Firm division that includes product, regulatory and infrastructure controllers as well as Corporate

Treasury, Tax, Financial Planning and Analysis and Strategy, Operations and Technology groups

Public Section 105

TERM ACRONYM DEFINITION

Financial Market

Utilities FMU

Multilateral systems that provide the infrastructure for transferring, clearing and settling payments, securities and other financial transactions among financial institutions or between financial

institutions and the system

Financial Stress

Communications Playbook

Playbook setting forth the Firm’s plans to manage and execute communications with key

stakeholders in periods of financial stress

Firm A collective term for MS Parent with all of its subsidiaries on a consolidated basis

Firm Recovery

and Resolution

Planning Team

Firm RRP

The Firm's group that is responsible for managing the development of the Resolution Strategy,

submission and maintenance of the Resolution Plan and related requirements and monitoring the

progress of related remediation projects

Firm Strategy

and Execution FSE

Firm division that is responsible for Firmwide and division-specific strategic planning and

execution of corporate M&A processes

Fixed Income

Division FID

Firm division that includes the Firm’s sales and trading business as related to fixed income,

foreign exchange and commodities BUs

FMU and Agent Bank Access

Playbooks

Playbooks describing strategies to facilitate continued access to the Firm's top FMUs and agent

banks during a period of financial stress

FMU Command Governance and communication protocol to support the Firm's PCS access strategies

Foreign

Exchange FX

Funding

Playbook

Playbook documenting the steps to estimate resolution-related liquidity and capital requirements

and downstream both liquidity and capital resources to its Material Entities, in BAU and throughout

the stress continuum including in resolution

Generally

Accepted

Accounting

Principles

GAAP

Gladiator

Program

A project within the RREP to provide for the identification, retention and continuity of access to the

critical shared services and resources that are necessary to support the Firm in resolution

Global Capital

Markets

Division of the Firm that provides traditional market coverage and underwriting services focused

on providing customized capital structure solutions to clients

Global Liquidity

Reserve GLR

The Firm's reserve for liquidity, which is comprised of highly liquid and diversified cash and cash

equivalents and unencumbered securities

Global

Resolution

Planning Non-

Qualified

Financial Contract Policy

Non-QFC

Policy

The Firm's policy that sets forth a framework for identifying, assessing and managing the risks

associated with the potential inability of a Material Entity to receive the benefits provided under

any Critical Contract as the Material Entity approaches, or is in, a resolution scenario

Global

Systemically

Important Bank

G-SIB Financial institutions that have been deemed as systemically important to global financial markets

by the Financial Stability Board

Governance

Mechanisms

Mechanisms designed to facilitate timely execution of required Board actions, including

authorizing MS Parent to provide financial resources to the Funding IHC and Material Entities in a

manner that is resilient to potential creditor challenge

Governance

Playbooks

Playbooks that incorporate the Trigger and Escalation Framework and discuss the fiduciary duties

of MS Parent and Material Entity Boards in order to support required actions

Guarantee An undertaking by MS Parent or a subsidiary for the benefit of counterparty to pay an underlying

obligation in the event the subsidiary does not make such payment to the counterparty

Public Section 106

TERM ACRONYM DEFINITION

Guarantee Administrative

Priority Motion

Emergency elevation motion, with transfer as an alternative form of relief, that would be submitted to the bankruptcy court to elevate guarantees of subsidiary QFCs to administrative priority status,

consistent with the requirements of the ISDA Protocols

Hong Kong

Securities Clearing

Company

Limited

HKSCC

Human

Resources HR

Division of the Firm that provides expertise and advice on human capital planning and

organization design to help ensure the Firm has the appropriate resources needed to meet its goals

Hypothetical

Resolution

Scenario

Hypothetical failure scenario and associated assumptions mandated by regulatory guidance

IM Sale

Package

Refers to the in-scope business and functional capabilities of IM, including key business

processes, personnel, systems, applications, vendors, facilities and intellectual property that

would be included within the sales in a resolution scenario.

Institutional

Equities Division IED

Institutional

Securities

Group

ISG Segment of the Firm that provides institutional customers with a range of financial advisory and

capital-raising services, assists them in accessing the capital markets and taking or hedging risk

Insured Depository

Institution

IDI

Inter-Affiliate

Market Risk

Framework

The Firm’s framework for inter-affiliate risk monitoring

Inter-Affiliate

Task Orders IATO Task orders entered into among the MSEs and between the MSEs and their MOE customers

Intermediate

Holding

Company

IHC Entity that sits in the ownership chain between a top-tier parent entity and another subsidiary of

the top-tier parent company

Internal Liquidity

Stress Testing ILST The Firm’s internal liquidity stress testing framework

Internal Loss

Absorbing Capacity

ILAC

For a given legal entity, the GAAP equity and subordinated debt of the entity, plus unsecured

borrowings of the entity from MS Parent or direct affiliate holding companies that can be converted into subordinated debt or GAAP equity through the Firm’s Support Agreement in resolution

International

Swaps and

Derivatives Association

ISDA

Investment

Banking

Division

IBD

Division of the Firm that offers financial advisory and capital-raising services to corporations,

organizations and governments around the world. IBD manages and participates in public

offerings and private placements of debt, equity and other securities worldwide

Investment

Management IM

Division of the Firm that provides a comprehensive suite of investment management solutions to a diverse client base that includes governments, institutions, corporations, pension plans and

individuals worldwide

ISDA Protocols

Part of a series of initiatives promoted by U.S. and foreign regulators and the financial industry to

contractually limit early termination of QFCs and is a recognized method of compliance with the

QFC Stay Rules

Public Section 107

TERM ACRONYM DEFINITION

ISDA Protocols

Playbook

Part of the Bankruptcy Playbook which analyzes issues associated with the implementation of the stay on cross default rights described in Section 2 of the ISDA Protocols and provides an

actionable guide to supplement the related motions and memoranda with a day-to-day description

of the steps that would be taken in the periods before entering, and upon commencement of, MS

Parent’s bankruptcy proceeding

ISG MOEs MOEs that are part of the ISG Solvent Wind Down, which include MSCO, MSIP, MSMS, MSCS

and MSCG

ISG Solvent

Wind Down

A sub-strategy of the Resolution Strategy that includes the recapitalization of the ISG MOEs as

necessary for them to remain solvent and liquid as they are wound down outside of resolution

proceedings

Japanese

Securities

Depository

Center, Inc

JASDEC Central securities depository of Japan

Key PCS

Provider Library

Library that enables a comprehensive understanding of the Firm’s PCS activities landscape and

contains information about the Firm’s direct and indirect relationships with key PCS providers

Korea Securities

Depository KSD Central securities depository of Korea

LCH Ltd. UK-registered clearing house, offering clearing services for asset classes including rates, FX, repos and fixed income, commodities, cash equities and equity derivatives

LCH SA France-registered clearing house, offering clearing services for credit default swaps, repos and

fixed income, commodities, cash equities and equity derivatives

Legal Entity

Rationalization LER

Vulnerability in resolution related to a firm's legal entity structure that was identified within the

2019 Guidance

Legal Entity

Rationalization

Criteria

LER Criteria The Firm's criteria for upholding a rationale and resolvable legal entity structure

LER Assessment

Framework

Framework that provides a transparent, repeatable and measurable process for the Firm to assess its adherence to the LER Criteria and non-structural standards and identifies any potential

areas requiring remediation efforts and/or enhancements to strengthen its adherence

Liquidity

Coverage Ratio LCR

Under the Basel III agreement, an assessment to determine whether or not a bank has sufficient

HQLA to survive a significant stress scenario lasting 30 calendar days

Liquidity Risk

Division LRD

Division responsible for reviewing the methodology and results from the Resolution Financial

Model

Listed

Derivatives Derivatives traded via an open exchange or market

Management Information

System

MIS

Marketing and

Sale Playbook

Playbook that describes the marketing and sale process that the Firm would expect to execute in

a resolution scenario

Markets in

Financial

Instruments

Directive

MiFID

Material Entity ME Legal entity that is significant to the activities of a Core Business Line or Critical Function and may be a MOE or MSE

Material Entity

Sales Proceeds

Funding

Agreements

Agreements regarding the proceeds of sales of Material Entities, which serve as an additional

source of liquidity in resolution. The Resolution Strategy does not rely on the use of sales

proceeds for successful execution.

Public Section 108

TERM ACRONYM DEFINITION

Material

Financial

Distress

Point in time at which (i) the Firm has incurred, or is likely to incur, losses that will deplete all or substantially all of its capital, and there is no reasonable prospect for the Firm to avoid such

depletion, (ii) the assets of the Firm are, or are likely to be, less than its obligations to creditors

and others and (iii) the Firm is, or is likely to be, unable to pay its obligations (other than those

subject to a bona fide dispute) in the normal course of business

Material

Operating

Entities

MOEs Legal entity that offers products or services to clients or counterparties and earns a significant

portion of any Core Business Line’s profits

Material Service

Entities MSEs

Legal entity that owns or controls resources that are significant to the continuity of the activities of

the Firm’s Core Business Lines as executed by MOEs, and is not an MOE itself

Mergers and

Acquisitions M&A

Million Mn

Minimum

Operating

Liquidity MOL The amount of liquidity that the Firm needs to run its daily operations

Mitsubishi UFJ

Financial Group,

Inc.

MUFG

Japan broker-dealer and Firm's joint venture partner since 2008 when the Firm entered into an

alliance to provide integrated services across corporate and investment banking, retail banking

and asset management

Model Risk

Management MRM

Division of the Firm that is responsible for independent risk control and review and validation of

the pricing and risk measurement models used by the Firm for valuation models

Money Market

Mutual Funds Mutual fund that invests in short-term debt securities.

Morgan Stanley & Co.

International Plc

MSIP UK Broker-Dealer; Designated as a MOE

Morgan Stanley

& Co. LLC MSCO U.S. Broker-Dealer; Designated as a MOE

Morgan Stanley

Advantage

Services Private

Limited

MSASPL India Workforce; Designated as a MSE

Morgan Stanley Asia Limited

MSAL Hong Kong Broker-Dealer and Support Service Provider; Designated as a MSE

Morgan Stanley

Bank

Aktiengesellschaft

MSBAG German Bank; Designated as a MOE

Morgan Stanley

Bank, N.A. MSBNA U.S. National Bank; Designated as a MOE

Morgan Stanley

Capital Group

Inc. MSCG, MSCGI U.S. Commodities, Swaps Dealer; Designated as a MOE

Morgan Stanley

Capital Services

LLC

MSCS U.S. Swaps Dealer; Designated as a MOE

Morgan Stanley

Employment

Services

MSES UK Pay Company; Designated as a MSE

Morgan Stanley

Europe SE MSESE German Broker-Dealer; Designated as an MOE

Public Section 109

TERM ACRONYM DEFINITION

Morgan Stanley Holdings LLC

Funding IHC Resolution funding vehicle; Designated as a MSE

Morgan Stanley

Hong Kong Ltd MSHKL Hong Kong Fixed Asset Holding Company; Designated as a MSE

Morgan Stanley

Hungary

Analytics

Limited

MSHAL Hungary T&D Center; Designated as a MSE

Morgan Stanley

Investment

Management

Inc.

MSIM Inc. U.S. Investment Advisory; Designated a MOE

Morgan Stanley

Investment

Management

Limited

MSIM Ltd UK Investment Advisory; Designated as a MOE

Morgan Stanley

Japan Group

Co., Ltd (MSJG)

MSJG Japan Support Services Provider; Designated as a MSE

Morgan Stanley

Management

Services

(Shanghai)

Limited

(MSMSSL)

MSMSSL China Workforce Center; Designated as a MSE

Morgan Stanley

MUFG

Securities Co.,

Ltd.

MSMS Japan Broker-Dealer; Designated as a MOE

Morgan Stanley

Private Bank,

National

Association

MSPBNA U.S. National Bank; Designated as a MOE

Morgan Stanley

Services

Canada Corp

MSSCC Montreal Technology Workforce Center; Designated as a MSE

Morgan Stanley Services Group

MSSG U.S. Support Services Provider; Designated as a MSE

Morgan Stanley

Services

Holdings

MSSH U.S. Payroll Company; Designated as a MSE

Morgan Stanley

Smith Barney

FA Notes

Holdings LLC

MSSBFA U.S. FA Notes Financing Company; Designated as a MSE

Morgan Stanley Smith Barney

Financing LLC

MSSBF U.S. Real Estate and Procurement Company; Designated as a MSE

Morgan Stanley

Smith Barney

LLC

MSSB U.S. Broker-Dealer, FCM; Designated as a MOE

Public Section 110

TERM ACRONYM DEFINITION

Morgan Stanley Solutions India

Private Limited

MSSIPL India Workforce Center; Designated as a MSE

Morgan Stanley

UK Group MSUKG UK Real Estate Company; Designated as a MSE

Morgan Stanley

UK Limited MSUKL UK Support Services Provider; Designated as a MSE

MSEHSE Group Group of entities, consisting of Morgan Stanley Europe Holding SE, MSESE and MSBAG,

established for purposes of managing certain business activities within the EU

MS Financing LLC

MSFL U.S. Real Estate and Procurement Company; Designated as a MSE

MS Parent The Firm's stand-alone parent holding company on an unconsolidated basis

MS Parent

Resolution

Minimum Liquidity

A reserve maintained by the Firm to maintain flexibility and support the Firm’s financial resiliency

to meet unanticipated liquidity outflows or capital losses

MSE Network Refers broadly to the Firm's MSEs, which provide resolution resilient services to MOEs

Multiple Point of

Entry MPOE

Resolution strategy in which more than one of a firm's legal entities files for bankruptcy while the

remainder are sold or wound down

National Futures Association

NFA

National

Securities

Clearing

Corporation

NSCC Central counterparty that provides clearing, settlement, risk management, central counterparty

services and a guarantee of completion for certain transitions

Near-Term

RCEN Estimates of RCEN over the forecast horizon used in resolution

Near-Term

RLEN Estimates of RLEN over the forecast horizon used in resolution

Office of the

Comptroller of

the Currency

OCC

Operating

Entities Entities that conduct external facing businesses (i.e. Home Company of front office cost center)

OTC derivatives Derivatives that are not listed and are executed bilaterally between two parties

Over-The-

Counter OTC

Pay Company The entity that maintains the legal employment relationship with an employee, responsible for the payment of all remuneration and benefits and typically organized geographically

Payment,

Clearing and

Settlement

PCS

PCS Data Repository

Repository to house and centralize key dynamic data supporting the Firm’s PCS Framework

PCS

Framework

Framework that contains the Firm’s capabilities for continued access to PCS services essential to

an orderly resolution

PCS Providers FMUs and agent banks used by the Firm to facilitate the clearing and settlement of cash and securities transactions in various markets globally

Public Section 111

TERM ACRONYM DEFINITION

Point of Non-Viability

PNV The point at which MS Parent is no longer viable and files for bankruptcy

Portfolio Loan

Account PLA

Positioning

Framework

Framework that the Firm uses to determine the appropriate amount of financial resources (i.e.,

liquid assets and ILAC) to be positioned at MS Parent and Material Entities

Primary

Scenario The hypothetical financial scenario underpinning the Resolution Plan

Prime

Brokerage PB

Process

Taxonomy The Firm’s method of describing its functions

Profit and Loss P&L

Public Section Public part of 2019 Plan

QFC

Remediation

Project

A project within the RREP to manage effort to eliminate the ability of third-party and affiliate

counterparties to terminate their QFCs upon the insolvency of a different legal entity than their

direct Firm counterparty

QFC Stay Rules

The QFC Stay Rules impose certain restrictions on the terms of QFCs entered into with U.S. G-

SIBs and the U.S. operations of foreign G-SIBs and require G-SIBs that are subject to the rules to

remediate their in-scope QFCs

Qualified

Financial

Contract

QFC

Contracts that, in many jurisdictions, have bankruptcy safe harbors that allow non-defaulting

counterparties to exercise contractual termination rights, value terminated transactions and setoff

collateral against outstanding obligations even if their counterparty has filed for bankruptcy. The

predominant types of QFC-based Firm transactions are OTC derivatives, repurchase agreements

and stock lending

RCAP* Runway Period losses plus RCEN

Recovery and

Resolution

Enhancement

Program

RREP A set of projects established by the Firm to further enhance its resolvability capabilities

Recovery and

Resolution

Planning

RRP

Recovery

Period

The period commencing with an idiosyncratic stress event, during which the Firm is under material stress, but without any actual or perceived significant risk of failure. Calculation Trigger

occurrence signals the start of a Recovery Period

Repurchase

Agreements An agreement to sell securities and repurchase them at a later date

Resolution

Analytics

Platform

RAP Analytics tool which is used to, among other things, analyze QFCs for resolution planning

purposes

Resolution

Capital

Adequacy and

Positioning

RCAP

Resolution planning capability identified by the Agencies, which represents the ability to estimate

adequate levels of external total loss absorbing capacity to support the Firm’s ability to absorb

losses in stress scenarios as well as determine the appropriate positioning of internal loss

absorbing capacity between MS Parent and each of the Material Entities

Resolution

Capital

Execution Need

RCEN

Resolution planning capability identified by the Agencies, which represents the methodology for

estimating the capital that each Material Entity requires for the execution of the Firm’s Resolution

Strategy

Public Section 112

TERM ACRONYM DEFINITION

Resolution Capital

Minimum

Capital required for a Material Entity to remain well-capitalized during the Resolution Period

Resolution Financial Model

The Firm's model that produces pro-forma balance sheets and other quantitative information as

well as estimates of funding, liquidity and capital needs over the Runway Period, Stabilization Period and Resolution Period. This model was previously referred to as the Resolution CFP, or

R-CFP

Resolution

Liquidity

Adequacy and Positioning

RLAP

A resolution planning capability identified by the Agencies, which represents the ability to estimate

and maintain sufficient available liquidity for Material Entities, while taking into account resolution

considerations and inter-affiliate frictions, including ring-fencing

Resolution

Liquidity

Execution Need

RLEN

A resolution planning capability identified by the Agencies, which represents the methodology for

estimating the liquidity needed after the MS Parent's bankruptcy filing to stabilize the surviving

Material Entities and to allow those entities to operate post-filing

Resolution

Liquidity Stress

Test

RLST The Resolution Liquidity Stress Test is a new component of the Resolution Financial Model and

includes enhanced methodologies for liquidity forecasting in resolution.

Resolution

Period

Period of time between MS Parent's bankruptcy filing and the completion of the Resolution

Strategy

Resolution Plan 2019 Plan The Firm Resolution Plan, which is one and the same with the 165(d) Plan and accordingly

addresses all applicable requirements

Resolution Plan

Review and Challenge

Framework

Framework to review Resolution Financial Model results

Resolution

Strategy

The Firm's resolution strategy under which MS Parent files for bankruptcy and its Material Entitles

are sold or wound down

Resolvability A Firm is resolvable if it is feasible and credible that it can be resolved without excessive disruption to the financial system or interruption to the provision of Critical Functions

Risk Weighted

Assets RWAs

Royal Bank of Canada

RBC Canadian bank and diversified financial services company

RRP Steering

Committee

RRP

Committee

RRP governance committee that ensures sufficiency of planning process, makes key RRP

strategy and policy decisions, develops consensus positions on external RRP-related issues and

approves the plan and recommends it to the Operating Committee for approval

Runway Period A resolution preparation interval, signifying Material Financial Distress, between the Distress Trigger and Bankruptcy Filing Date, not to exceed 30 days

Secured

Funding

Collateralized forms of lending such as repurchase agreements, securities lending transactions

and financing total return swaps. Secured funding liabilities are managed centrally across the Firm

by Bank Resource Management together with secured funding assets, such as reverse

repurchase agreements and securities borrowing transactions

Securities and

Exchange

Commission

SEC

Security Agreement

Agreement creating perfected security interests in assets of MS Parent and the Funding IHC that could be contributed to the Material Entities

Senior

Management Refers broadly to direct reports of the Chairman and Chief Executive Officer of the Firm

Public Section 113

TERM ACRONYM DEFINITION

Service Level

Agreement SLA

A contract between a service provider and a service recipient that defines the service expected from the service provider and the pricing and/or any other consideration provided by the service

recipient

Service

Taxonomy Describes the nature of services being provided between a service provider and receiver

Services Describes the sum of one or more activities between a provider and a receiver, performed to

support businesses

Shared

Services

Services provided by a support function where the cost of the service is shared across multiple

businesses and/or legal entities. Technology and Data, Operations, BRM, Finance, LCD, Risk

Management, Administration (including Corporate Services, BCP, and HR) Internal Audit, and

Research are all Shared Services

Shared

Services

Command

Firm function that helps to identify, assess, escalate and mitigate potential risks related to shared

services

Single Point of

Entry SPOE

A resolution strategy that involves rapidly recapitalizing the material entities of a top-tier bank

holding company prior to the top-tier bank holding company's failure and its commencement of

Chapter 11 proceedings. The material entities would then either (i) be transferred to a newly

created holding company owned by a trust for the sole and exclusive benefit of the bankrupt top-

tier holding company's creditors or (ii) remain under the bankrupt top-tier holding company as

debtor-in possession. The Resolution Strategy contemplates the latter

Stabilization

Period

Refers to the first portion of the Resolution Period during which Prime Brokerage customers are

requesting transfer of their assets to third-party providers and the Firm processes such transfers

Strategic Contract

Repository

Ecosystem

SCORE Set of approved repositories for the storage of shared services contracts. Enhanced operational metadata is also captured for Critical Contracts to enable search capabilities across the

repositories

Strategic

Warehouse of Operational

Relationship

Data

SWORD Repository used to manage and maintain the Firm's operational mapping data

Support Agreement

The Firm's 2019 Amended and Restated Support and Subordination Agreement

Support

Agreement

Framework

Comprised of (i) triggers to escalate information to the MS Parent Board, (ii) a Support Agreement

to facilitate the injection of necessary financial resources into Material Entities and (iii) a Security

Agreement to secure MS Parent's support obligations to the Material Entities, all designed to

facilitate timely execution of required board actions and provision of financial resources in a manner that is resilient to potential MS Parent creditor challenges

Support and

Control Function SCF Non-revenue generating organizations that facilitate the Firm's BU activities

Support

Completion

Period

Period of time after a Support Trigger and prior to an MS Parent bankruptcy filing during which MS Parent downstreams its remaining contributable assets to Funding IHC

Support

Triggers

Point at which MS Parent would be required to contribute to the Funding IHC its remaining

contributable assets

System A functioning set of technology-related components that together provide a set of capabilities (e.g., applications, business EUC, utilities/tools and vendor products)

Technology

Division of the Firm that supports all of the Firm’s Critical Functions through technical solutions

designed and developed specifically for the business. Key activities include: system and

application development, data and network security, infrastructure, system operations and disaster recovery.

Public Section 114

TERM ACRONYM DEFINITION

Three Pillars of Resolution

Planning

Strategic and Legal Framework, Financial Adequacy and Operational Continuity and Capabilities

Total Loss

Absorbing Capacity

TLAC

Transitional

Services

Agreement

TSA Contract between two parties in a divestiture that provides essential services in a variety of

functional areas for the business in transition following its legal separation from the seller

Trigger and Escalation

Framework

The Firm’s framework containing triggers based on capital and liquidity metrics which prescribe when the Firm must take clearly identified actions and initiate related communications to

implement the Resolution Strategy

UK Financial

Conduct

Authority

FCA

UK Prudential

Regulation

Authority

PRA A UK regulatory agency created as a part of the Bank of England by the Financial Services Act of

2012

Wealth Management

WM Segment of the Firm that provides investment solutions designed to accommodate individual investment objectives, risk tolerance and liquidity needs

WM Sale

Package

Refers to the in-scope business and functional capabilities of WM, including key business

processes, personnel, systems, applications, vendors, facilities and intellectual property that

would be included within the sales in a resolution scenario.